Thursday, December 29, 2011

December 29 2011: Trends 2012: The End of the Euro, The End of the Investor

G. G. Bain Fire 1916
"W.T. Grant department store fire at New York's Sixth Avenue and 18th Street in April 1916"

Ilargi: Oh, sure, don't get me wrong, there may still be a Euro a year from now. And there’ll certainly be some investors left.

But the Euro, if it manages to survive, will have to do so in what can only be characterized as a radically different form and shape. At the same time, small mom and pop stock investors will be few and far between; there's no money in the "traditional" stock markets, as they've found out - once more - in 2011. Many will also need what money they still have in stocks to pay down various kinds of other obligations.

As for the stock markets, I found it greatly ironic that on December 23, the S&P 500 was up for the year. Yesterdays markets plunge did away with that irony, but given the psychological importance, I wouldn't be surprised if, in the slim trading volume between Christmas and New Year's, one party or another will make sure the number comes in positive anyway.

What strikes me in all this is the disparity between the S&P and financial stocks. It’s unreal. If mom and pop hold bank stocks, they're not very likely to have turned a profit. If pension funds are anything to go by (they lost big time this year), mom and pop had lean turkey at their holiday family parties.

Here's a little overview of the year-to-date performance of some of the major global banking stocks on December 29, 2011, before the opening bell:

  • BofA: -60.38%
  • Citi: -44.76%
  • Goldman Sachs: -46.41%
  • JPMorgan: -23.03%
  • Morgan Stanley: -45.24%
  • RBS: -50%
  • Barclays: -34.32%
  • Lloyds: -63.02%
  • UBS: -29.33%
  • Deutsche Bank: -28,55%
  • Crédit Agricole: -56.04%
  • BNP Paribas: -37.67%
  • Société Générale: -59.57%

These are just some of the Too Big To Fail institutions. And while your governments have enough faith in them - or so they want you to believe - to prop them up with trillions of dollars of your money, investors are fleeing them, even if they can expect them to be propped up further.

That doesn't just say something about confidence in the individual banks, it shouts loud and clear from the rooftops on confidence in the banking system as a whole, and indeed on governments' ability to continue bailing them out. In other words: bailouts don’t build confidence, they are taken as a sign that trouble's on the way.

Mom and pop will finally clue in to this in 2012, and get -their money- out of harm's way. Well, either that or lose it. Their money, that is. Perhaps their minds too. And their homes. Their jobs.

Of the banks above, the European ones are in even deeper doodoo than their US counterparts. Gordon T. Long, in a report called Collateral Contagion, lifts a hitherto little known part of the veil:

There are approximately $55 trillion of banking assets in the EU. This compares to only $13 trillion in the US. Bank assets in the EU are 4 times as large as in the US.

In the US, debt held by the bank is smaller because retail deposits are a primary source of funds. EU banks use wholesale lending and, as a consequence, the debt held by banks is close to 80% versus less than 20% by US banks.

Wholesale bank lending in the EU approximates $30 trillion versus only $3 trillion in the US, a 10 X differential.

Wholesale lending is fundamentally borrowing from money market funds and other very short term, unsecured instruments. The banks borrow short and lend long. It all works until short term money gets scarce or expensive.

Both have occurred in the EU and this recently placed Dexia into bankruptcy, forcing it to be taken over by the Belgian and French governments. The unsecured bond market fundamentally closed in the EU in Q3 2011, as fears mounted that an EU solution was not forthcoming.

Assuming $30 trillion of loans is spread over three years, EU banks have a requirement for $800 billion a month of rollover financing for wholesale lending outstanding.

Ilargi: If those numbers don't render you speechless, please read them again. $800 billion a month of rollover financing, every single month for three years.

The ECB recently passed out €489 billion in three-year loans at 1%. Nobody was impressed for more than a few hours. Gordon T. Long's report reveals at least a part of the reason why. Moreover, the ECB is now accepting the proverbial toilet paper as collateral for the loans, but guess what, banks are running out of toilet paper! David Enrich and Sara Schaefer Muñoz touch on the same topic for the Wall Street Journal:

Europe's Banks Face Pressure on Collateral
Even after the European Central Bank doled out nearly half a trillion euros of loans to cash-strapped banks last week, fears about potential financial problems are still stalking the sector. One big reason: concerns about collateral.

The only way European banks can now convince anyone—institutional investors, fellow banks or the ECB—to lend them money is if they pledge high-quality assets as collateral.

Now some regulators and bankers are becoming nervous that some lenders' supplies of such assets, which include European government bonds and investment-grade non-government debt, are running low.

If banks exhaust their stockpiles of assets that are eligible to serve as collateral, they could encounter liquidity problems. That is what happened this past fall to Franco-Belgian lender Dexia SA, which ran out of money and required a government bailout.

"Over time it is certainly a risk," said Graham Neilson, chief investment strategist for Cairn Capital Ltd. in London. "If banks don't have assets good enough to pledge as collateral, they will not be able to tap as much liquidity...and this could be the end-game path for a weaker bank."

Ilargi: The market for unsecured bonds issued by banks is dead. And they no longer have any collateral left to issue secured bonds. So what will they do?

Saw this Guardian headline yesterday: Liquidity crunch fears stalk markets. I’d say that should have read Solvency crunch fears stalk markets. The ECB has taken care of short term liquidity. But to no avail.

Collateral equals solvency. The ECB loans equal liquidity. And liquidity means nothing if you're insolvent. Inevitably, banks will start to fall by the wayside. Even some of the Too-Big-To-Fail ones.

As will countries. There is no chance - well, I’ll give you 1% or 2% - that Greece will still be part of an unchanged Eurozone a year from now. Chances for Portugal, Ireland, Italy and Spain may be a bit higher, but certainly not by much. France will face huge market pressure. And presidential elections.

The road going forward has become completely unpredictable. For you and me, and also for our "leaders". They don’t like that, even less than we do. That's why we saw this report from Philip Aldrick in the Telegraph a few days ago:

UK treasury plans for euro failure
The Government is considering plans to restrict the flow of money in and out of Britain to protect the economy in the event of a full-blown euro break-up.[..]

Officials fear that if one member state left the euro, investors in both that country and other vulnerable eurozone nations would transfer their funds to safe havens abroad. [..]

Under European Union rules, capital controls can only be used in an emergency to impose "quantitative restrictions" on inflows, [..]

Capital controls form just one part of a broader response to a euro break-up, however. Borders are expected to be closed and the Foreign Office is preparing to evacuate thousands of British expatriates and holidaymakers from stricken countries.

The Ministry of Defence has been consulted about organising a mass evacuation if Britons are trapped in countries which close their borders, prevent bank withdrawals and ground flights.

Every government, in Europe and in the US, is busy working on contingency plans, just like this one, over the holidays. Bank holidays are considered, capital controls, travel restrictions.

In order to keep the basics of their economies going in case of financial disaster, governments will need to make sure they have the means to cover basic necessities. In a world where most of the energy and food is imported, that is a herculean task.

Who's going to issue the letters of credit that make imports possible? And what will they be covered with? Will Saudi Arabia, Russia, China and the US still accept euros when the defection of Greece and/or others makes the future of the Eurozone and the entire EU highly uncertain? No, they will probably want guarantees in US dollars.

As we speak, the euro is getting hammered, as is sterling, as is gold. Or are they? Or is it perhaps that the USD is rocking, in anticipation of near-future demand?

The risks for Europe come from all sides now, and at some point, which I think could be very close, one of these risks will not be -fully- covered. Because of the close interconnectedness between EU countries, as well as that between European and global financial institutions, one single domino may set in play a chain of events that will be beyond governments' control.

And, as I said, they don't like that. They may opt to pre-empt any such possible events. In the Eurozone alone, we're looking at 17 different governments who may decide to do so, in whatever way. Leave the Eurozone, leave the EU, stall decision making, refuse to pay debt. 17 different governments, many of whom will change during the course of the year, have multiple options that would derail the entire EU project as it was intended to be.

While sovereign and private debt is certain to keep on rising, and willingness to lend in order to stave off defaults is disappearing.

No, I don't know what the euro will look like next Christmas, but it won't be what it looks like today. It could be the return of the drachma and lira, or the return of the mark and guilder, or all of the above. But not a 17 countries' Eurozone.

Nontas Stylianidis, AFP, Getty Images Burning Greek 2011
"Bringing Greece's economy back under control has led to many protests, none more dramatic than when Apostolos Polyzonis set himself alight outside a bank branch in Thessaloniki, Greece, on Sept. 16. He survived his serious burns."

A bit more Europe. I’m spending some time in Holland, and wrote down the following over Christmas:

Holland has already officially confirmed it is in recession. And this at a point in time when its gigantic housing bubble hasn't even started popping yet. With mortgage debt at anywhere between €650 billion (official government number) and €1 trillion (Ernst & Young, unconfirmed by me) for its 16.7 million citizens, and taking into account that only an estimated 50% of Dutch are homeowners to begin with, it should be obvious that a "mere" 10% or 20% drop in prices would be devastating.

If 9 million (well over that 50%) Dutch men, women and children bear that €650 billion debt, each and everyone of them carries over €72,000. A typical family of 4 is then €288,000 ($375,000) in debt. On average! The huge popularity of interest-only mortgages has undoubtedly contributed strongly to this debt proliferation. And most will still feel fine, because the inevitable fall in prices hasn't materialized yet. And, admittedly, there are substantial savings.

Any drop in prices beyond 20% would mean unmitigated disaster. A huge part of private savings would be wiped out, and the banks that hold the mortgages would be pushed further into their already bankrupt status. Given the near inevitability of one or more countries leaving the Eurozone, even after trillions of euros were spent to prevent just this from happening, it's hard to see what the government could do to stave off widespread financial mayhem.

That same government did launch one idea last week: it seeks to force the country's "home-building corporations", a left-over from post-WWII state building projects aimed at offering affordable rental homes to everyone, to sell 75% of their rental homes to present occupants (at "reasonable" prices...). That’s a lot more potential debt slaves in one fell swoop. Whether or not a government, any government, should aim for just that is quite another matter.

This is one of Europe's richest countries. Or so everyone seems to think. Europe is rotten at the core too, not just the periphery.

S&P 500 Falling Below 600? This Will Even Make The Bears Shudder
by Tomi Kilgore - Wall Street Journal

United-ICAP senior technical analyst Walter Zimmerman says the S&P 500 could rally a little further into January before beginning a "traumatic decline" for the rest of 2012, dragged down by weakness in Europe.

How traumatic? You might want to sit down for this one.

He thinks the index will reach its 2012 peak in the 1293-1311 zone, then start a "sharp and sustained drop" until December. His downside target is around 579.57.

579.57! The index would have to wipe out the March 2009 lows and fall by more than 50% current levels to reach that target. And the last time the S&P 500 traded below 600 was in the mid 1990s, when the Backstreet Boys burst on the scene and bell-bottom jeans were making a comeback.

Zimmerman’s reasoning is Europe is in an even worse shape now than it was at the beginning of the year. "If the history of debt tells us anything it is that one cannot solve a debt crisis by lending more money to the bankrupt and the insolvent," Zimmerman says.

He expects 2012's price action will mirror what the S&P 500 did from its Oct 2007 peak until it bottomed in March 2009.

"The technical patterns suggest that 2012 will be a terrible year for holding stocks. Even if by some miracle the euro zone hangs together, it is already falling into a deep and enduring recession," says Zimmerman. "We expect this recession will drag down both the USA and China."

The S&P 500 was recently up 0.2% at 1268.

Europe's Banks Face Pressure on Collateral
by David Enrich and Sara Schaefer Muñoz - Wall Street Journal

Even after the European Central Bank doled out nearly half a trillion euros of loans to cash-strapped banks last week, fears about potential financial problems are still stalking the sector. One big reason: concerns about collateral.

The only way European banks can now convince anyone—institutional investors, fellow banks or the ECB—to lend them money is if they pledge high-quality assets as collateral.

Now some regulators and bankers are becoming nervous that some lenders' supplies of such assets, which include European government bonds and investment-grade non-government debt, are running low.

If banks exhaust their stockpiles of assets that are eligible to serve as collateral, they could encounter liquidity problems. That is what happened this past fall to Franco-Belgian lender Dexia SA, which ran out of money and required a government bailout.

"Over time it is certainly a risk," said Graham Neilson, chief investment strategist for Cairn Capital Ltd. in London. "If banks don't have assets good enough to pledge as collateral, they will not be able to tap as much liquidity...and this could be the end-game path for a weaker bank."

The ECB earlier this month moved to address the collateral shortages; Mario Draghi, the central bank's new president, announced it would accept a wider range of assets as collateral for ECB loans, which have become a primary source of funding for many European banks.

The looser rules, which will allow some corporate bonds to be used, kick in early next year, in time for banks to pledge the assets in exchange for three-year loans that the ECB will offer on Feb. 29.

Some bank executives, regulatory officials and other experts are optimistic that will largely solve the problem. "The ECB is being much more generous. We think there's enough [collateral] to exceed European banks' funding needs for the next year," said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group.

In one sign that the ECB move has eased market strains, even if only modestly, Italian borrowing costs dropped sharply Wednesday as the country successfully auctioned more than €10 billion, or $13 billion, of short-term debt. Average yields on six-month bills were 3.251%, half that of an auction a month ago and even below those in October, although yields on 10-year benchmark bonds remained just below 7%.

Other market watchers, however, remain concerned. In addition to fears that the banks might simply run out of eligible collateral, some bankers and regulators worry that the banks' growing reliance on "secured lending" will make it harder for the industry to return to its past practice of funding itself by issuing unsecured bonds. That could result in a permanent funding scarcity.

It is tough to tell how big a problem this is. European banks generally don't disclose how many assets they have on their balance sheets that would be eligible as collateral, either to pledge with the ECB or to package into "covered bonds," which are secured by mortgages or, in some cases, municipal loans that remain parked on the banks' balance sheets.

The Bank of England is among those ringing alarm bells. Officials are worried that the growing reliance on secured lending like covered bonds has left increasing portions of bank assets "encumbered," or otherwise committed. That means they wouldn't be available to unsecured creditors if the bank collapsed.

Officials also are nervous that some banks, particularly smaller ones, could exhaust their supplies of collateral that can be used for covered bonds or with the ECB, according to people familiar with the matter.

The U.K.'s Financial Services Authority recently conducted a confidential survey of British banks to gauge the degree to which their assets are encumbered. The Bank of England is in the early stages of reviewing the data and hasn't yet reached any firm conclusions, said the people familiar with the matter.

Since this summer, it has been difficult for banks to issue unsecured bonds, because investors view European banks as risky investments. In the second half of 2011, European banks issued a total of about $80 billion of senior unsecured bonds, according to data provider Dealogic. That compares to $240 billion in the same period last year and $257 billion in 2009.

Banks have had to turn to other sources for funding. Banks in Spain, Italy and France, among others, have borrowed hundreds of billions of euros from the ECB on a short-term basis, posting items including government bonds—often from financially weak countries such as Greece and Ireland that helped precipitate the crisis—as collateral.

For longer-term financing, banks have been issuing covered bonds. European banks have issued about $334 billion of these bonds this year, up 8% from last year and 24% from 2009, according to Dealogic.

UK treasury plans for euro failure
by Philip Aldrick - Telegraph

The Government is considering plans to restrict the flow of money in and out of Britain to protect the economy in the event of a full-blown euro break-up.

The Treasury is working on contingency plans for the disintegration of the single currency that include capital controls. The preparations are being made only for a worst-case scenario and would run alongside similar limited capital controls across Europe, imposed to reduce the economic fall-out of a break-up and to ease the transition to new currencies.

Officials fear that if one member state left the euro, investors in both that country and other vulnerable eurozone nations would transfer their funds to safe havens abroad. Capital flight from weak euro nations to countries such as the UK would drive up sterling, dealing a devastating blow to the Government’s plans to rebalance the economy towards exports.

Earlier this year, Switzerland was forced to peg its currency to the euro to protect the economy after a massive appreciation in the Swiss franc due to spiralling fears over Europe.

The plans emerged as Spain’s new finance minister Luis de Guindos warned the country’s economy was set for negative growth in the last quarter. Speaking yesterday he warned the next two months "are not going to be easy".

Britain’s response to the possible break up of the euro would reflect measures taken by Argentina when it dropped the dollar peg in 2002, according to sources. In addition to the risk of an appreciating currency, dealing with potential UK corporate exposures to the euro poses a considerable challenge for the Treasury.

Britain’s top four banks have about £170bn of exposure to the troubled periphery of Greece, Ireland, Italy, Portugal and Spain through loans to companies, households, rival banks and holdings of sovereign debt. For Barclays and Royal Bank of Scotland, the loans equate to more than their entire equity capital buffer.

Under European Union rules, capital controls can only be used in an emergency to impose "quantitative restrictions" on inflows, which would require agreement of the majority of EU members. Controls can only be put in place for six months, at which point an application would have to be made to renew them.

Capital controls form just one part of a broader response to a euro break-up, however. Borders are expected to be closed and the Foreign Office is preparing to evacuate thousands of British expatriates and holidaymakers from stricken countries.

The Ministry of Defence has been consulted about organising a mass evacuation if Britons are trapped in countries which close their borders, prevent bank withdrawals and ground flights.

Treasury officials would not comment on the specifics of any plans but said the Government always had contingency plans that cover a full range of eventualities.

A break up of the euro would have a devastating impact on the UK. HSBC economists have warned that it could trigger a global depression and forecasters at the Centre for Economic & Business Research reckon it would knock about a percentage point off UK growth – plunging the country into a full-blown recession in 2012.

The scale of economic problems alongside the existing debt burden would leave the Government with little in its armoury to combat the collapse, making capital controls one of the few viable options.

There is a glimmer of good news for the global economy with upbeat figures expected today from the US. Reports from America suggested US consumer confidence figures out today could rise to a five month high as house prices stabilise.

Why ECB's LTRO Won't Stop Collateral Contagion
by Tyler Durden - ZeroHedge

How long can the European media keep the EU credit implosion a secret? The disgraced former IMF Director, Demonic Strauss Kahn said on Tuesday December 12th, 2011 that No 'Firewall' Exists and Europe Has 'Only Weeks' [28].  Of course within minutes of this Financial Times news release which detailed his vent on EU leadership and the perilous situation in Europe, the article disappeared.

The details of the European liquidity crisis are generally reported, but for some reason no media source wants to pull the pieces together so everyone can see the magnitude and futility of the crisis. A growing Collateral Contagion is being shrouded in the apparent belief that the solution to the European Financial and Banking crisis is a grand change in Treaty governance. 

Obviously the European Central Bank (ECB) was well aware of the reality, when it was forced to deploy a historic and unprecedented LTRO (Long Term Purchase Operations) on Wednesday December 21, 2011.  560 banks desperately and immediately grabbed what they could, to the tune of €489B.

The LTRO bought the EU private banks some time. It did nothing to solve the EU Sovereign Debt Crisis. After less than one week, the cash held at the ECB surged [29]€133B to a new record €347B. Since the net LTRO [30] was only €210B, it tells you that the EU banks not only have a cash problem, but more specifically, as ECB President Mario Draghi says [29] : "hoarding at the ECB signals that the problem afflicting the Eurozone is not so much about the amount of liquidity but that this liquidity is not circulating around the region's banks".

I would argue that the problem short term is a shortage of real collateral and that US dollar cash, versus 'encumbered' cash flow, is now king. It is clear that the rampant advancing Collateral Contagion will quickly eat this futile attempt like ravenous wolves.  A well circulated Tweet [31] from PIMCO bond king Bill Gross said it all: " What does LTRO stand for? 1- A shell game; 2-Cash for trash; 3 Three-card Monti; or 4. All of the above."

Here is the stark reality of what forced the ECB to offer unprecedented three year loans at absurd rates and most alarmingly, the acceptance of collateral that no other financial institutions will accept. The ECB has sacrificed its balance sheet in yet another EU "kick at the can".


1.     COLLATERAL CONTAGION: There is a cascading Collateral Contagion crisis in which secured lending, based on sound assets, has replaced unsecured lending based on future expected cash flows.

2.     WHOLESALE LENDING: Wholesale bank lending, which is a unique cornerstone of European banking, has completely frozen since the failure of Dexia and US Money Market Funds will no longer risk short term capital having learned their lesson in 2008.

3.     BANK RUNS: Bank Runs are quietly and insidiously occurring throughout the peripheral EU countries as corporate and private depositors seek safe havens for their cash holdings.

4.     SHADOW BANKING SYSTEM: The European Shadow Banking System off balance sheet and unreported leverage structures, such as SIV (Structured Investment Vehicles) is collapsing due to non performing loans which must finally be rolled nearly 3 years since the financial crisis began.

5.     GLOBAL INVESTORS PULLING SOVEREIGN EU INVESTMENTS: Net outflows from the euro-zone’s financial account reached €32.1 billion in October alone, on an unadjusted basis. The drop reflects the sale by foreign investors of €53.3 billion in euro-zone debt instruments and €6.6 billion in equities.

6.     INTERBANK LENDING: Prior to LTRO, overnight interbank lending was impaired as LIBOR, LIBOR-OIS and TED spread yields were going almost straight up on a percentage change basis.

7.     INVERTED YIELD CURVES: Prior to LTRO, yield curves in the EU peripheral countries were either inverted or nearing inversion prior to LTRO.

8.     US DOLLAR SWAPS: A shortage of US dollar denominated loans forced the US federal Reserve and other global central banks to intervene and offer what is turning out to be unlimited US dollar SWAPs for minimal interest rates and unprecedented, extended durations, not previously considered.

9.     SOVEREIGN BOND MARKET: The EU Sovereign Bond Market is being avoided by almost all Global financial institutions. The only participant are Central Banks desperate to buy more time until confidence is restored.

10.  GERMAN BUND SCARE: You cannot have a currency without a risk free bond. The German Bund had become a proxy for this, but recently even the Bund has come under pressure as selling escalated in a flight from Europe.

11.  YEN CARRY TRADE: The YEN Carry Trade which has been a major financing source for the EU, even prior to its inception, is being forced to unwind due to a significantly weakening Euro and the threat of a serious drop.

12.  BASEL BOX: The Tier 1 Core Capital requirements have forced many banks to actually shrink lending to meet requirements. A significant withdrawal from lending in Central and Eastern Europe and many Emerging countries is now clearly seen as a direct result.

13.  CREDIT DOWNGRADE ONSLAUGHT: S&P placed the long-term sovereign-debt ratings of 15 euro-zone nations, including struggling Italy and Spain, on negative watch. That typically means there is at least a 50% chance of a downgrade within 90 days. France is likely to soon lose its coveted AAA rating, which will impact the European Financial Stability Fund (EFSF) borrowing costs.

The list is even longer, but it will need to suffice for this shorter article.

The above issues suggest, minimally, an immediate  €4-8 Trillion EU problem.

The EU has no ability to solve this problem short of simply printing Euros, which unlike the US Federal Reserve, Bank of England and Bank of Japan, the ECB presently (I stress presently) refuses to do.

Let's briefly discuss a few of these so we can appreciate the seriousness of the EU problem and what lays behind a first half 2011 surge of $107 TRILLION in derivative SWAPS.


The rest of the interesting and unusually complete article can be found here:

Article Collateral Contagion [32]

The euro area risks 'hyperdeflation' and, ultimately, demise

The European Central Bank must intervene in the government bond market to prevent a default by solvent states such as Spain

Confidence is crucial in economic and financial affairs. Once it is lost, it can be very difficult to rebuild. Confidence in the euro zone is draining away and matters have gone so far that it is not at all certain that any set of measures will stop the slide.

How much of the inaction and delay is brinkmanship by some creditor countries to ensure debtor countries impose reforms they need remains to be seen. But the price of brinkmanship is paid in confidence and credibility.

The most recent decision of the European Central Bank to further erode its own credibility came last Friday when it signalled that its interventions in the sovereign bond market would be limited to €20 billion a week. It is hard to imagine a worse decision. Self- declared ceilings on purchases guarantee the ineffectiveness of intervention.

That was all too plain to see this week. On Tuesday the Spanish treasury was obliged to offer interest rates of 5.1 per cent on bonds maturing in just three months. That was more than double the rate (of 2.3 per cent) it offered on the same securities just one month ago. This can only be explained by a massive panic premium. Spanish government debt is lower than Germany’s and the effectiveness of that country’s political system is closer to Germany than Greece.

On Wednesday, the outright failure of Germany – of all countries – to sell all the bonds it had put up for auction gave a further sign of just how fragile the situation has become.

Without the biggest change of policy tack yet, Italy and Spain are unlikely to be able to raise money at any price within months, if not weeks. Such a scenario would leave these countries unable to pay maturing debt. Without an emergency bailout, a second and third euro zone sovereign default would take place. In the short term, the ECB is the only institution with the wherewithal to prevent the situation reaching that point.

If evidence of the power of open-ended central bank commitments is needed, Europeans have only to look inwards to see it. Switzerland, surrounded by euro zone states, is a perceived safe haven. It experienced very sharp exchange rate appreciation during the summer and into the autumn as a result of capital fleeing the euro and flooding into the Swiss franc. The soaring franc threatened to price the Alpine economy’s exports out of international markets.

When the Swiss National Bank (SNB) responded, it came out with all guns blazing. The response was almost instantly effective, bringing down the value of the franc and anchoring it at or close to the level it had targeted against the euro.

The SNB was successful because it has an unlimited supply of Swiss francs to sell. Once it signalled that it would exercise this option as aggressively as was necessary in order to prevent its currency rising above a named threshold, the euro, franc exchange rates stabilised. And the lesson: market participants know they cannot win against a central bank with unlimited firepower.

For those wondering why the Irish Central Bank was not able to prevent the Irish pound suffering devaluations in the past, it should be recalled that to support a weakening currency you need to buy your own currency. That requires foreign currency. Because central banks have a finite supply of foreign currency, their reserves will be depleted sooner or later if the markets push them far enough. But markets cannot defeat a bank selling the currency it prints for itself.

The ECB must intervene now in the government bond market with the same determination that its Swiss counterpart has done in the foreign exchange market.

This, of course, does not mean there is a free lunch available. It is intuitive to anyone that, for one branch of government to lend to another, is not a costless means of solving the underlying problem of public overindebtedness. But that is not the purpose.

The purpose of intervention now is to eradicate the panic premium that could push a government as solvent as that of Spain’s into default within weeks.

What are the objections to taking such a course of action? First, if the ECB bails out bad governments, it provides an incentive to all to govern badly. This is moral hazard. But the ECB put moral hazard to one side after the collapse of Lehman Brothers in order to save the financial system. It must do so again to prevent sovereign default. It could be added that the departure of George Papandreou and Silvio Berlusconi goes a distance to addressing the moral hazard problem anyway.

Another argument against the ECB buying up large amounts of government debt is that it will cause inflation. But a central bank can "sterilise" its bond purchases by conducting counterveiling operations so that the money supply is not affected. That is exactly what the ECB has done. I cannot see any reason why there should be a limit to the amounts it can sterlise.

And even if some or all of the purchases were not sterilised, there is little reason to fear inflation running out of control in the prevailing economic climate. Just look at Britain and the United States. In both countries unsterlised central bank interventions have been conducted in the form of quantitative easing (QE). But even with these large unsterilised interventions, inflation in both economies is only slightly ahead of the rate in the euro zone.

There is plenty of scope for the ECB to follow the lead of other central banks without any danger of inflation, never mind hyperinflation, a spectre raised by the ECB’s ultra-orthodox Jürgen Stark in Dublin on Monday. It is true that if unsterilised central bank intervention is done to excess and for too long it will certainly destroy a currency, as periods of hyperinflation in Weimar Germany and today’s Zimbabwe have shown. But Europe is light years from that point.

Yet another concern that has been raised about purchasing government bonds is the risk of losses for the ECB if the bonds it is exposed to are written down.

Treaty law appears to rule out the bank printing money to give to governments to pay off their debts (known as monetisation). If that is so, the question becomes how big a loss could the Frankfurt bank take before becoming insolvent itself?

Opinions differ on how much capital the ECB and the wider euro system of national central banks has. But the choice facing the bank is between risking some of its independence (by seeking recapitalisation if it does burn through all its capital) and putting its own existence at risk.

Europe is now very close to a default on Italian or Spanish debt. That would, in turn, trigger a collapse across other asset classes. It is hard to see where this would end until all the dominoes had fallen.

Therefore, the imminent risk Europe faces is – to coin a phrase – hyperdeflation in asset prices, not hyperinflation in consumer prices. Everything possible must be done to prevent hyperdeflation. If the ECB does not act to prevent that, it will surely bring about its own demise.

Italy 10-Year Borrowing Costs Stay Near Record At Sale
by Valentina Za - Reuters

Italy's borrowing costs fell from recent record highs at a bond auction on Thursday but cautious investors still demanded a near 7 percent yield to buy 10-year debt, a level seen unsustainable over time for the euro zone's third-largest economy.

Traders said the European Central Bank stepped in after the auction to buy Italian bonds on the open market as investors worry about the country's ability to sell enough long-term debt ahead of large redemptions early next year. The ECB's injection of nearly half a trillion euros of cheap funding for banks and a new Italian budget package this month have eased pressure on short-term debt, but longer-dated bonds still pose a challenge.

Italy raised 7 billion euros of debt in thin holiday markets, just above the mid-point of its target range. It sold the top planned amount of its 10-year benchmark bond but the yield was 6.98 percent, not far from a euro lifetime record of 7.56 percent a month ago.

The yield on the three-year BTP bond fell more markedly to 5.62 percent from a euro era record of 7.89 percent at an end-November auction. At the time, in a sign of acute market worries about Italy's ability to repay, the three-year yield was higher than the one on the longer maturity.

"Today's decline in the auction yield by 'just' about 60 basis points versus end-November in such a high-yield territory underscores that the genuine pressure on Italy is still tremendous, despite bold ECB actions that have given (short-term debt) a big boost," said David Schnautz, a rate strategist at Commerzbank in London.

The fall in the three-year yield came after Italian six-month borrowing costs halved at an auction on Wednesday. These were the first Italian debt sales since the ECB flooded euro zone banks with three-year funds and the Rome government overcame internal opposition to a radical pension reform as part of Italy's third budget package since the summer.

This week's auctions will settle in January and help towards the Treasury's challenging gross funding target of around 450 billion euros has for next year. In a push to keep investors buying Italian debt, a new technocrat government in Rome is planning to tackle Italy's chronic low-growth problems.

But markets look with concern at some 91 billion euros of Italian bonds coming due between January and April. "Given the scale of its funding requirements, there are still big concerns about Italy's ability to get through 2012," said Nicholas Spiro of Spiro Sovereign Strategy. "Next quarter is going to be all about Italy."

While Italy can count on strong domestic support such as from retail investors at its short-term debt sales, its longer-dated bonds are more reliant on foreign buyers, giving a clearer picture of the market attitude towards the country's debt. The ECB intervened after the sale as Italian 10-year yields remained locked above 7 percent on the secondary market.

The euro crisis deepens
by Aditya Chakrabortty - Guardian

Every week brought more dire forecasts in the battle to save Europe's economic club. But 2012 will be its worst year yet

Europe's leaders have spent most of the euro crisis denying there's a euro crisis. A "specific Greek problem", that they'd give you. Irish and Portuguese aberrations. As for the Spanish, that really was hard manchego. Wherever disaster struck over the past two years it was always the member's fault, never the club's.

The denialism ended this summer, as the financial bushfire moved to Italy and even began to menace Belgium and France. Sequestered in their conference rooms in northern Europe, policy-makers found it easy to wave away catastrophe in the distant, poorer periphery – but far harder when the second and third-largest economies in the entire bloc were under threat.

If the rhetoric and the not-so-faint snobbery have vanished, to be replaced by panic about "a last wakeup call" and "a crucial crossroads", the actual policy-making is as clueless as ever. At the last major summit, the one where David Cameron pressed the eject button, little was agreed apart from a restatement of Maastricht rules on budget deficits.

Markets got excited about the promise of a $200bn loan to the IMF; until it transpired that the figure had been plucked out of thin air and no one knew where it would come from.

The eurocrats can impose austerity, and bring in Goldman Sachs employees such as Mario Monti to run newly impoverished economies; but anything that might actually break the fire still eludes them.

In the meantime, the crisis has just kept growing. In February 2010, Greece needed to raise just €53bn for the entire year; now euro leaders are looking for a trillion euros and counting.

Compare and contrast: in his memoirs, Alistair Darling recounts that it took ministers and officials 10 days and one curry-fuelled all-nighter in autumn 2008 to hammer out the complex and costly combination of ready cash, loans and guarantees that saved the British banking system.

Over in the EU, on the other hand, finance ministers have met formally 10 times this year alone, their heads of state a further 10. They have agreed four "comprehensive packages", each more comprehensive than the last, yet none has created any sense that the continent is fortified against the battering it is about to get.

Because it is almost certain that 2012 is going to be the worst year yet for the eurozone. Easily the worst financially, terrible economically and increasingly grim politically.

A good rule of thumb in this crisis is that when a European state pays more to borrow than an ordinary taxpayer shells out for a bank loan, the government eventually has to call in the rescue brigade.

For much of November, Italy was borrowing at a rate of 7% – and probably the only thing that has kept interest rates from going higher still is that the European Central Bank (ECB) has been buying Rome's IOUs.

In other words, the markets trust the Italian state – with its own tax-raising powers – less than it does a couple in Kettering who'd quite like a new kitchen. Which, given that Italy plans to roll over more than €360bn (£310bn) of debt next year, is hardly sustainable for the new prime minister Mario Monti.

Indeed, on 1 February, Rome will have to either repay or renew €28bn of loans. Even now, no one has the faintest idea how it will do that.

Over the next couple of months, Italy's crisis can go one of three ways: either the ECB keeps on buying its bonds, with the blessing of northern-European voters and markets; or ECB head Mario Draghi pledges to fund financially distressed eurozone governments; or Rome gives in and calls for a bail-out.

If the last even looks likely, financiers will almost certainly panic that Italy is about to default on its debt. With about a third of the country's bonds held abroad, this could wreak chaos in world markets – including in Britain, which is by far the biggest foreign owner of BTPs. That's the sort of event Barack Obama has in mind when he remarks that Europe's crisis is "scaring the world".

Rome's not the only government whose finances are in jeopardy; Madrid is in the same boat, while Brussels and Paris have also seen a surge in loan rates. Less often talked about is that many of Europe's banks, even well-known French names, are unable to borrow unless from the ECB.

"You have European banks nowadays claiming they're not European at all because they're worried the very word will scare away investors," says Grant Lewis, head of research at Daiwa Europe. That credit crunch cannot carry on for much longer without causing either a full-scale banking crisis or throttling economic growth.

Not that there's much growth to be had, because the prescription of austerity for sick economies simply makes them sicker. By the IMF's own projections, 2012 will be Greece's fifth straight year in recession, which by now should really be termed a depression.

The Germans and their allies may have demanded sharp spending cuts in southern Europe, but it leaves them struggling to export. Couple that with the credit freeze and the eurozone looks set for another recession.

"If the euro fails then Europe fails," Angela Merkel has said. But is this version of continental union worth saving? Northern European governments frozen before an existential threat. Southern European regimes forcefed a diet of IMF-style austerity. And hardly any institutions to bolster or stand behind its currency.

When people think about the euro they often think about expensive buildings in Brussels or Strasbourg. But the 17-state eurozone has no international bank regulator, no common treasury and hardly any budget.

All it has is a central bank and big capital markets. Businesses and financiers can move easily, but for workers the euro is a battering ram against their standards of living.

Playing out in western Europe right now is the kind of race to the bottom people normally associate with Latin America. That's already happened to German workers, whose wages (after inflation) fell 4% in the 2000s. And now it's happening in Greece and Spain and Portugal too – only there the deflation is even more toxic because it's been imposed by northern Europe.

Meanwhile in Germany they're wondering why they should pay for the continent's economic car-crashes.

No wonder opinion polls across the continent show anti-euro sentiment is rising. No wonder too that financiers are no longer idly speculating about a breakup of the single currency, but are now modelling its likely impact.

And not just in eurosceptic London either. Lewis chaired a conference in Asia a few months ago with an audience of about 100 fund managers and big investors. They were asked to vote on whether the euro club would look the same in three years' time as now. Less than half the crowd thought it would.

After the turbulence of 2011, could the euro crisis get worse? Oh yes, it could – and it will. I'll bet you a thousand drachmas.

Euro Outlook 2012 – Do or Die?
by Boris Schlossberg - GFT

Until recently, the notion of EUR/USD fracture was inconceivable to most market analysts who assumed that the breakup of the world's largest integrated economic bloc was simply too complex and too destructive to consider seriously.

However, the events of 2011, which saw the sovereign debt crisis spread from the periphery to the very core of Europe, radically changed market perception as the idea of the euro break up suddenly became a very real possibility. Interbank FX dealing platforms even went so far as to run tests on the old regional currency units, such as the drachma and the lira, to be prepared just in case of such eventuality.

Therefore, the upcoming year shapes up as a do-or-die year for the EUR/USD. The question on most traders' minds isn't whether the single currency pair will rise or fall, but whether it will actually survive the year intact.

Market analysts are almost universal in their agreement that, in order for EUR/USD to remain a viable currency, the region will need to move towards much closer fiscal integration, but it remains to be seen whether EZ officials will be ready to make the necessary political adjustments to create a more unified European structure that can respond to the market challenges ahead.

Turmoil in the Credit Markets Engulfs All
In 2011, the Eurozone credit problems (which started with Greece the year prior) blew up into a full-scale crisis as one member after another came under the assault of bond market vigilantes. By the end of the year, it appeared that no country was safe as panic spread from the Southern periphery all the way to the Northern core.

Although Greece was "patient zero" in this particular pandemic, in many ways, it was an outlier in the Eurozone. Unlike other European economies, Greece was clearly insolvent as its debt-to-GDP ratio rose above 150% while its revenue-raising ability was severely hampered by an inefficient and corrupt taxation system.

The country needed immediate debt restructuring and capital infusion in order to revive the economy. Yet due to political considerations, theEurozone officials delayed any action and then imposed draconian terms on any bailout funds, insuring that the country devolved into a near economic depression.

The net result is that Greece is now effectively a ward of the Eurozone, but worse, the delays and political wrangling that surrounded the whole bailout process destroyed investor confidence and emboldened the shorts to go after other weak European credits, exacerbating the crisis exponentially.

Viva Italia?
By the end of 2011, the credit crisis in Europe engulfed not only Greece, Portugal, Ireland, and Spain, but jumped directly to Italy - the region's third-largest economy and the world's fourth-biggest issuer of sovereign bonds.

The turmoil in the Italian credit markets ended the career of Silvio Berlusconi whose anarchic-governing style dominated Italian politics for more than 19 years. In his stead, Mario Monti, a well-respected technocrat, became the prime minister.

The markets welcomed the change, but the damage had been done. By the end of 2011, Italy was paying more than 7.5% on its 10-year bonds versus 4.5% just a year earlier.

Most analysts agree that this near doubling of debt costs is absolutely unsustainable. In 2012, Italy faces a roll of nearly 300 billion euros in its sovereign debt obligations. Most of these transactions are frontloaded to the first half of the year, making the financing even more challenging.

Ironically enough, Italy is one of the few G-10 countries that runs a primary budget surplus, meaning that, absent interest payments, the country takes in more revenue than it spends. Yet, despite these impressive internals, Italy also carries a Herculean-debt burden of more than 120% of GDP, which is why the country is so vulnerable to a credit attack by the shorts.

Italy simply cannot service debt at 7.5% with headline inflation at 3% or lower and GDP growth not expected to exceed 1%. The burden of carrying such high, real-interest rates is simply too onerous for the country to bear and many analysts fear that Italy will not be able to survive such harsh financing conditions if it's forced to deal with the problem unilaterally.

Half Measures But No Solutions
As the Eurozone credit crisis deepened, most market analysts have come to the conclusion that the region must implement a much more unified fiscal policy if the euro is to survive. Ultimately, that will mean some sort of a federal budget, a pan-European taxing authority, and a rationalization of pension benefits across the union.

Such complete integration will require a massive cultural and political change from the region's 300 million plus citizens and is unlikely to occur quickly. In the meantime, the Eurozone will have to move towards issuing Eurobonds to address the concerns of the capital markets.

Only by federalizing credit risk across all of its member nations will the Eurozone be able to lower the cost of financing for its peripheral economies to a sustainable level.

A recent European Commission study on the subject of Eurobonds offered three possible scenarios on how Europe could issue debt. The first and the most radical option would be to replace all of the national credit issuance by bonds backed by the whole EU.

This course of action would create a huge capital market that could compete on equal terms with U.S. Treasuries, but it would also mandate extensive changes in the EU treaty and would require Europeans to give up much of their national sovereignty.

A more moderate approach would be for euro area countries to issue "stability bonds," which would only be partially guaranteed and would be subject to caps on volume. Such a solution could provide some relief to beleaguered Club Med economies, but it may not be enough to stabilize the markets.

Finally, a third way would allow EU countries to issue a limited amount of "blue bonds," which would enjoy the collective backing of all of the members, and thereafter issue "red bonds," which would be backed solely by the issuing sovereign.

For the time being, European fiscal officials have been highly reluctant to adopt any of these proposals as Germans are loathe to dilute their balance sheet while periphery members are reluctant to cede authority over budget matters to some supra-national entity.

The only policy response has come from monetary authorities and it has been limited at best. Because the ECB is legally prevented from buying member bonds on the primary markets, the central bank has been woefully ineffective at controlling the interest spikes suffered by Spain, Italy, Portugal, and other member nations.

Instead, the ECB has tried to support the secondary market, but even there, its participation has been limited at best. The ECB has contained its purchases to no more than 20 billion euros per week, sterilizing the trades for minimum impact. Little wonder then that its activities have been woefully ineffective.

In a perfect world, the Eurozone would quickly move to a Eurobond solution, allowing member nations to mutualize the credit risk across the whole region. Such a structure would put an end to the endless game of hunting the next weakest credit, but it is unlikely to become policy anytime soon due to fierce resistance from Northern Europe.

Instead, policymakers are trying to use a multifaceted approach that includes more aggressive intervention from the ECB, a mild leveraging of the EFSF, and the prospect of using the Fed along with 17 central banks from Europe.

Together, they would create a lending consortium that would provide a "triple-digit billion" loan to the IMF. This would be used to create a special fund that would help finance troubled credits in the Eurozone region.

It appears that authorities on both sides of the Atlantic are coming to the conclusion that the central-banks-to-IMF scheme is the most expeditious policy response to the sovereign debt problem.

It neatly sidesteps many political barriers by providing much needed capital without obtaining legislative approval. Yet, the jury is still out on whether this course of action will actually pacify the credit markets and create a viable firewall around the biggest EU sovereigns.

Teetering on the Verge of Recession
Meanwhile, as Eurozone officials struggle with the burgeoning debt crisis, the turmoil in the markets is clearly expanding into the real economy. The region's basic measurements of economic activity have all turned sharply lower.

Both PMI Services and Manufacturing surveys have dipped below the 50 boom/busts line for the past three months in a row, indicating that the region as whole will likely contract in Q4 of this year.

The ECB has acknowledged the rapid deceleration in activity and the new ECB president, Mario Draghi, surprised many market observers with a rate cut of 25bp at the October meeting and added another 25bp cut in December.

The drop in the benchmark rates has had no meaningful impact on stimulating lending and instead, it simply served to partially offset the major contraction of credit conditions caused by the volatility in the sovereign debt markets.

Going forward, it is almost certain that the ECB will need to cut rates further as it tries to counterbalance the draconian austerity measures demanded by the market.

The irony of the situation is that, even if the Eurozone officials are able to weather the storm in the capital markets, the massive budget cuts required to bring the balance sheets to order will likely result in a severe recession in the Eurozone as government demand is removed from the economy.

2012 may well be the moment of truth for the Eurozone as the region struggles to resolve the issues of sovereignty and currency. There is little doubt that the single currency project has been a massive economic success for the region, eliminating many former barriers to trade while making commerce much more efficient and friction free.

The euro has made the Eurozone not only an economic powerhouse, but a political force to be reckoned with as Europeans compete on an equal footing with Asians and North Americans on the global economic stage. The testament to the strength of the idea lies in the price of the euro itself.

Despite all of the problems, the euro trades at 130% of the greenback as the Eurozone remains the largest economy in the world. The key to maintaining that status will mean that member nations will have to sacrifice political sovereignty in return for economic prosperity.

If they are finally willing to make that adjustment, the euro will survive and may once again prosper. If not, 2012 may well become the year that the single currency experiment in Europe comes to a chaotic end.

European markets await more turbulence in 2012
by Ben Perry - Agence France Presse

European stocks and the euro will face fresh turbulence in 2012 after a year in which equity markets slumped and the single currency lost ground against the dollar mainly due to the eurozone crisis.

Europe's main stock markets have tumbled between 6.5 and 25 percent since the start of 2011, as traders looked past positive economic data and earnings, while the euro has fallen 2.5 percent versus the dollar in volatile trading.

Yields on eurozone sovereign debt meanwhile rocketed in late 2011 as investors demanded top returns for lending money to the bloc's indebted countries such as Greece and Italy. "Attempting to forecast where the dollar, euro, gold, oil or any western stock market might end next year is no less a mugs game than it was this time last year," said Howard Wheeldon, a senior strategist at BGC Partners.

"Who could have imagined that by the eleventh month of the year we would have been talking about not only the collapse of the eurozone but also a possible breakdown of the European Union? "Who would have thought that in such a short space of time the economies of Europe would have effectively ground to a halt and that the outlook for resumption of growth would be virtually nonexistent?" he questioned.

The eurozone debt crisis dominated market sentiment in 2011 and is widely expected to be the main focus in 2012, at least in the early part of the year, overshadowing geopolitical strains and the race for the White House. The euro ended the year by briefly diving under $1.30 and hitting the lowest point since the start of 2011. By Friday, it had recovered slightly to trade at $1.3076.

The single currency meanwhile plunged to a 10-year low point against the yen in September as investors reacted to mounting economic uncertainty and tumbling equities in Europe and the United States. "2012 is likely to be dominated by the quest for safe havens on the foreign exchange markets, as risks are omnipresent," said Commerzbank analyst Ulrich Leuchtmann.

"The eurozone debt crisis is threatening to escalate or at least to become a permanent institution connected to a high level of anxiety. Globally economies are either sliding into recession or have to expect falling growth levels. "In view of all these dangers the US dollar might turn out to be the real winner," he added. Other traditional safe havens include the yen and gold.

Although the euro is set to end the year lower against the greenback, at the start of May it struck a 16-month high of $1.4940 owing to weak US economic data and as investors welcomed a bailout of indebted eurozone member Portugal.

In recent months the euro and European stock markets have headed south as countries struggle to get to grips with the escalating debt crisis. "For 2012, the eurozone crisis is likely to remain a key issue," said Neil MacKinnon, an economist at Russian financial group VTB Capital. "Greece is likely to default and other countries, including Italy, would require debt restructuring."

Among Europe's main stock markets, Milan has been the biggest faller in 2011, losing 25 percent since the start of the year, as investors worried about a possible bailout of Italy, the eurozone's third biggest economy.

London's benchmark FTSE 100 index has shed 6.5 percent to around 5,500 points, with non-eurozone member Britain shielded to an extent from the bloc's crisis, even though the bloc remains its main trading partner. Frankfurt has slumped 15 percent, Paris 18 percent and Madrid 13 percent.

"Rather than providing a FTSE 100 prediction for end-2012, we are recommending the 'bottom-up' approach for investors," said Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers.

"There remains ongoing uncertainty around the eurozone situation. The likelihood of a peripheral country stepping outside of the euro increases as the situation wears on. On the economic front, the possibility of a recession in the area seems more likely than less to happen."

Dollar and yen higher in 2011 flight to safety
by Garry White - Telegraph

The dollar reasserted itself as the global reserve currency of choice in 2011, despite concerns about US debt.

Worries over borrowing in recent years have seen the dollar weakening, despite successive Treasury Secretaries repeating their mantra that the country has a "strong dollar policy".

However, as a lack of safe-haven alternatives and a liquidation of risky assets unfolded, the US currency rallied sharply in the last few months of the year. The dollar index, which tracks the greenback against a basket of currencies, jumped by about 9pc from its lows earlier in the year.

Worries over eurozone sovereign debt prompted the dollar gains, as did the removal of the Swiss franc as an alternative safe haven currency in September. The Swiss central bank intervened to dampen the currency's appreciation as the exchange rate hit an export-damaging level.

The Swiss National Bank (SNB) set a minimum exchange rate of 1.20 francs to the euro, arguing the current value of the franc was a threat to the economy. To achieve this, the bank said it would buy foreign currency in "unlimited" quantities.

In December, speculation mounted that the Swiss would move to weaken its currency further, as data showed that orders at Swiss industrial companies had fallen by about 5pc. However, the SNB did not make such a move. It does, however, remain a possibility for 2012.

A couple of weeks ago, UBS said that the SNB's intervention meant that the Swiss franc could no longer be regarded as a safe haven. "As we enter 2012, neither gold nor the Swiss franc retains a safe haven status," Alexander Friedman, Zurich-based chief investment officer at UBS Wealth Management, said.

At the start of 2011 UBS said investors considered gold, the franc, the US dollar, US Treasuries and Japanese government bonds as safe havens. Gold, which many believe is an alternative currency, spike to all time highs during August, hitting $1,923 an ounce, but retrenched sharply over the next few months.

The recent flight to safety means that Japanese yen is likely to be the best performing currency of the year in 2011 - for a second year in a row. The Japanese central bank was also forced to intervene this year, selling yen to protect its exporters. At the end of October, the bank sold $100bn (£64bn) worth of yen. However, dollar strength at the end of the year meant that the Japanese currency weakened against the dollar. As we enter 2012, City strategist expects the dollar and yen to continue to strengthen.

US pressure on China to drop its policy that caps the strength of the yuan continued. The policy makes the country's exports more competitive over the world, but makes imports more expensive - a fact which has accelerated the shift of manufacturing jobs to the east from the west. The country dropped the yuan's fixed peg against the dollar in 2010 but still intervenes to control its value.

Other countries that have had to manage soaring currencies have been the commodity producing nations. Canada, Australia, Russia, Brazil and South Africa have benefited from strong export demand for natural resources. However, this has led to rising costs for major international companies in these countries – with miners being especially hard hit by the money-market moves.

The Australian dollar hit another all-time high against the pound in July, but the Canadian dollar did not match its record high set in 2012 - but it came close. The pound was weak against the euro, as were all major crosses, in the first half of the year, but the single currency has been weakening against all major crosses as the Sovereign debt crisis unfolds. The pound also weakened against the dollar in the second half.

Will German Growth Stall in 2012?
by Katrin Elger, Dietmar Hawranek, Martin Hesse and Christian Reiermann - Spiegel

The global economy is at risk from all sides, with the European debt crisis, a weak US economy and a slowdown in China. But most German companies are still doing well, and executives are optimistic about 2012. Experts wonder, however, how long the export-driven German economy will be able to elude the gathering storm.

Ever since she became the managing director of the International Monetary Fund (IMF) last July, Christine Lagarde, 55, has been lamenting the state of the world economy.

The Frenchwoman recently said that the outlook for the global economy was "quite gloomy" and that if the international community failed to act decisively to halt the downward trend it could lead to a great depression such as the one in the early 1930s. "There is no economy in the world … that will be immune to the crisis," she said.

That is true. Nevertheless, there are countries that are doing better than others despite all the current global difficulties -- and this includes Germany, the core of the ailing euro zone, which Lagarde has pointed to as the cause of the current problems.

Most leading indicators and economic statistics in Germany point toward an improvement for the coming year. Wages and salaries are expected to rise in 2012, as is the number of jobs. Exports are predicted to continue to grow along with domestic demand.

There's a growing sense of optimism among German companies and consumers. The Ifo index, which measures German business sentiment, has been rising again for the past two months and the GfK consumer confidence index also rose in December. It looks as if the Germans are ignoring all the dire predictions.

Astonishingly Resilient
Over the past year, the German economy has already shown itself to be astonishingly resilient amid the global economic turmoil sparked by the euro crisis, the sluggish recovery in America and a weakening of economic growth in China. Germany's gross domestic product (GDP) rose this year by approximately 3 percent, much more than in neighboring countries and in the US and, more importantly, far more than in the crisis-stricken peripheral countries of the euro zone.

In fact it's been a record-breaking year for the German economy. This year, German companies exported goods worth over €1 trillion ($1.3 trillion) -- the highest figure ever. The number of people in work has also risen to 41.6 million, more than ever before.

Germany's economic success does not make the country more popular among its neighbors, though. After all, this is the same country that has been blocking all proposals to use the European Central Bank (ECB) to provide more generous financing for embattled euro-zone countries. Some European countries appear to be secretly hoping that Germany, Europe's economic paragon, will also soon feel the brunt of the crisis.

In effect, the question is how long the export-driven German economy can elude the downward economic spiral that has affected many regions of the world. The economy is shifting down a gear around the globe, not just in the US and China, but also in the debt-ridden euro-zone members, which are the main customers for German companies. Austerity programs in these countries are curbing growth.

Still Doing Comparatively Well
The Germans are not immune to this development either. Economic research institutes and bank economists are revising their forecasts downwards from week to week. Nevertheless, the German economy is still expected to grow over the coming year, albeit at a slower rate. The most recent forecasts range from 0.3 to 0.6 percent.

But even if growth will be modest, Germany is still doing rather well compared to the rest of Europe. Other European countries, such as France, are on the verge of a recession -- and the southern euro-zone crisis states are already seeing their economies shrink.

Germany is primarily able to defy the downward trend thanks to its dynamic flagship industries. For instance the electrical and electronics industry is anticipating continued brisk business in 2012. The German Electrical and Electronic Manufacturers' Association (ZVEI) expects growth of 5 percent and sales amounting to €190 billion. "We've just completed an outstanding fiscal year and we're about to begin a record year," says ZVEI head Klaus Mittelbach.

The mechanical engineering sector is also brimming with self-confidence. Hans-Jochen Beilke, chairman of the board of Ebm-Papst Group, which manufactures electric motors and fans, is extremely satisfied. His employees in the southern German town of Mulfingen make components such as fans for energy-saving refrigerators and blowers for silent kitchen exhaust hoods, and his company's products are found everywhere from Rome to Beijing. "Things went extremely well last year," says Beilke, "and we're also optimistic for 2012."

The German Engineering Federation (VDMA) is forecasting 4 percent growth for its members. "There's currently an upbeat mood in the mechanical and plant engineering sector," says the organization's chief economist, Ralph Wiechers, "even though there are clear signs of decreasing demand." This year the sector reported a 14 percent increase in production.

The forecast for 2012 is significantly lower, but that's "no sign of a crisis," says Wiechers. "Following the sharp drop in production a few years ago, many manufacturers were recovering from low levels. They had a lot of catching up to do," argues Wiechers. "The sector normally doesn't experience such extreme fluctuations."

Ready for a Crisis
German car manufacturers BMW, Daimler and Audi even had to shorten the usual break in production during the Christmas season because they have so many orders to fill. Their plants are operating at capacity.

But that's just the current situation. "We don't know exactly what lies in store for us in 2012," says BMW CEO Norbert Reithofer, who has warned his supervisory board that sales may drop in the near future. At their last meeting of the year, he presented three scenarios: What will happen if BMW's sales drop by 60,000 or 100,000 or even 200,000 vehicles in 2012? The answer: not much.

Such a crisis would not be a crisis for BMW. The Munich-based carmaker could easily absorb a possible decrease in sales. Thanks to numerous extra shifts, many workers have accumulated overtime hours in their so-called working-time accounts (an instrument used by some German companies to give themselves flexibility during economic slowdowns).

If production has to be reduced, the workforce can simply take some time off. BMW has significantly more equity and liquidity than it did in 2008, when sales plummeted in the wake of the Lehman Brothers bankruptcy. "We're prepared," says Reithofer.

Reithofer's counterparts Dieter Zetsche at Daimler and Martin Winterkorn at Volkswagen also don't see any serious threats looming on the horizon for their companies. The automotive bosses assume that sales will decline in Europe. But the three German manufacturers hope that they can largely offset this with rising sales volumes in the US, China, India, Russia and Brazil. "There is no reason to assume there will be a crisis scenario," says Daimler boss Zetsche.

Small and medium-sized companies, the backbone of the German economy, are also entering the new year with confidence. According to a report on a survey conducted by the German Chambers of Industry and Commerce (DIHK), "small and medium-sized businesses continue to rate the economic situation as exceptionally good."

Companies say that their order books are well filled and most German firms are satisfied with their workload. The results also showed that 44 percent rated their economic situation as "good," while only 9 percent felt it was "poor." According to the study, "the tumultuous developments on the stock exchanges and the sovereign debt crisis are not reflected in the economic reality of large segments of the small and medium-sized business sector."

Furthermore, 23 percent of the small and medium-sized companies surveyed expect business to be even better in 2012 than this year, and only 16 percent anticipate poorer results. Their willingness to invest also matched up with these findings: Some 26 percent of small and medium-sized businesses intend to invest more next year, while 16 percent plan to invest less. The general positive mood is also apparent on the job front. Small and medium-sized firms intend to create some 200,000 new jobs next year.

Competitive Firms
The strong competitiveness of German companies is behind this positive situation -- and that's unlikely to change in the near future. Although wage agreements are higher than in previous years, they're not so high that they rob German companies of their competitiveness.

On the contrary: Collective bargaining agreements are currently having a beneficial effect. Since employees are now earning more money, they make more purchases. What's more, approximately half a million new jobs were created in 2011. Both factors combine to boost consumption which, together with investments by companies, will also bolster growth in the coming year.

Unemployment in Germany is expected to continue to decline by over 100,000 to some 2.8 million. This is due to new jobs and demographic change. More older individuals are retiring than are being replaced by young people entering the workforce. The greatest concern facing small and medium-sized businesses is not problems like the faltering global economy, but rather the growing shortage of skilled workers.

Germany's fellow members in the euro club can only dream of such problems. The crisis-ridden states of Ireland, Portugal, Greece and Spain are stuck in a slump. Austerity measures imposed by the European Commission and the IMF are strangling economic activities in these countries. Growth is not expected here until 2013, at the earliest.

Italy and France, the two largest economies after Germany in the euro zone, are also facing a possible downturn. Economists predict that France's economic output will shrink in the final quarter of 2011 and the first quarter of 2012. This would fulfill the classic definition of a recession.

Growing Fears of a Credit Crunch
The gains made by Germany are not enough to balance out the losses made by the other members of the monetary union. Germany's Ifo institute is predicting an overall decline of 0.2 percent in the total GDP of the euro zone.

Banks play a key role in determining whether Europe slides into recession -- and how severe such a recession would be. Due to the sovereign debt crisis, the business world is now afraid of the prospect of a second Lehman effect: In the fall of 2008, Europe's economy went into a state of shock within weeks after the collapse of the Lehman Brothers investment bank. The banks didn't lend each other money anymore, and companies' flow of credit threatened to dry up.

Now this fear is returning. The crisis of confidence in the banking sector is scarily reminiscent of the conditions that led to the Lehman bankruptcy, as the ECB warns in its latest financial stability report. "We're afraid of a credit crunch," says the head of the Central Bank of Luxembourg, Yves Mersch. Meanwhile, the head of the European Banking Authority (EBA), Andrea Enria, says that he's afraid that the financial institutions, which have been sharply criticized for years for their risky investments, could now become risk averse.

The fact of the matter is that Enria's EBA may have actually exacerbated the situation. Acting on behalf of the EU, it told the banks that they needed larger capital buffers to be prepared for possible defaults on European sovereign bonds. Banks have two ways of achieving higher core capital ratios: They can either acquire additional capital -- or reduce the scope of their business to minimize their capital reserve requirements.

Since investors are reluctant to inject fresh money into financial institutions, many banks are choosing the second option. Germany's Commerzbank alone has announced that it intends to reduce its risk-weighted assets by €30 billion. In some EU countries, like the UK, Ireland and Spain, banks have already started cutting back on their loans, according to the ECB.

No Lack of Credit
Germany's central bank, the Bundesbank, noticed back in the third quarter that banks had tightened their conditions for granting loans. But does this mean that the country is already facing a credit crunch?

"No," says Lutz Goebel, president of an association of family-owned businesses in Germany. "As I see it, there's currently no financing shortfall for most companies in Germany." When German companies need loans, then this is primarily at locations where they are rapidly growing, such as in emerging markets in Asia where, according to German bankers, there is no lack of credit.

It's a very different story, though, in Europe's crisis-stricken countries, where banks are having increasing problems borrowing the money that they need for their ongoing activities. European banks have €200 billion of debt maturing in the first quarter of 2012 alone.

This prompted the central banks of the leading industrialized nations to flood the markets with money in late November, and in December the ECB again eased the conditions under which banks can borrow money. "We are doing our best to avoid a credit crunch," said ECB President Mario Draghi.

Cash injections on an unprecedented scale have boosted growth in the US, where the central bank, the Federal Reserve, has been pursuing a zero interest rate policy for years. The flood of money is enticing Americans to spend more again. Private consumption plays a much greater role in the US than in Europe. Over 70 percent of America's economic output is based on domestic consumption.

In November the US unemployment rate dropped below 9 percent for the first time since March 2009. Nevertheless, growth remains slow and, at slightly more than 2 percent, will hardly be enough to rapidly reduce the country's jobless rate in the new year. More importantly, it won't be sufficient to pull the global economy out of its slump.

Worst-Case Scenario
Two years ago, it was China's huge demand that kept the world's economy from crashing. Now, the land of seemingly endless growth is showing signs of fatigue. Over the last few months, industrial production has slowed and exports have weakened. Sales of Chinese commodities are a far cry from what they were just a few years ago, and the slump is affecting everything from electronics manufactured in Shenzhen to machinery made in Shanghai.

The Chinese government is trying to counter this development, but its options are limited. The central bank recently relaxed its monetary policy -- and fueled yet another threat to economic stability. There's already a real-estate bubble in China. If it bursts, this would significantly slow the country's economic growth.

There have always been risks and dangers to the world economy looming everywhere, but the combination of the euro crisis and flagging growth in Asia makes it difficult for economists to predict future developments. In their scenarios they still only concede a slight possibility that the European monetary union could collapse, but if the euro actually does implode in 2012, all their predictions will be obsolete.

Executives at a German carmaker have already examined what would happen if the heavily indebted so-called PIIGS countries (Portugal, Ireland, Italy, Greece and Spain) were to leave the monetary union. According to their calculations, the economies in these countries would shrink by 6 percent, while the economies of the countries that retained the euro would contract by 4 percent. The managers agreed that this scenario would be a disaster -- and not just for the automotive industry.

ECB overnight deposits reach record
by William Launder - MarketWatch

Use of the European Central Bank's overnight deposit facility reached a new, all-time high Monday, as euro-zone banks increasingly turned to the ECB as a safe-haven for extra funds.

Banks deposited €411.813 billion overnight Monday, up from €346.994 billion deposited overnight Thursday ahead of the Christmas holiday, ECB data showed Tuesday.
Monday night's deposit figure surpasses the previous all-time high record of €384.3 billion reached in June 2010.

The high level reflects ongoing distrust in inter-bank lending markets, where banks prefer using the low-risk ECB facility for excess funds rather than lending them to other banks. The high deposit level also suggests markets aren't fully convinced that the ECB's massive long-term loan allotment last week is enough to fortify the currency bloc's banking sector.

The central bank extended nearly half a trillion euros in long-term loans to euro-zone banks last week, hoping to ease fears of a new credit crunch as banks struggle to borrow from markets.

The ECB further said banks borrowed EUR6.131 billion from the ECB's overnight lending facility, compared to EUR6.341 billion borrowed Thursday. When markets are functioning properly, banks only use the facility to the tune of a few hundred million euros overnight.

ECB Reaches €211 Billion Target At Weekly Drain Operation
by William Launder, Dow Jones Newswires

The European Central Bank drained the full volume of its government bond purchases from the euro zone's banking system as planned Tuesday, removing EUR211 billion in liquidity from the market.

The target amount equals the total volume of purchases under the ECB's program for buying euro-zone government bonds on the secondary market. The data indicate that the ECB is still able to mitigate the inflationary impact of its bond purchases, despite acute tensions in euro-zone financial markets and a sizeable increase in the bond buying program since August.

The ECB said it received a total of 95 bids, accepting 63.12% of bids at a marginal rate set at 0.89%. The central bank is typically able to drain all of the funds targeted at the routine, weekly operation. Last month, it missed its weekly target for the first time since the central bank relaunched its bond buying program in August, as banks concerned about the debt and banking crisis hoarded liquidity.

Banks still continue to park record high levels of funds in the ECB's overnight deposit facility, using the central bank as a safe-haven for funds rather than lend them out to banks they perceive as increasingly risky because of their exposure to sovereign debt and counter party risk.

2012: Stocks up 10% — or Doomsday scenario?
by Paul B. Farrell - MarketWatch

10 triggers threaten capitalism as 'Super-Rich Gap' rivals 1929’s

"Strategists predict a glowing 2012: Stocks forecast to finish the year up more than 10%." Yes, USA Today reports that the strategists are high on holiday cheer.

But is "America’s Financial Doomsday" a more likely headline for 2012, as international bank analyst Martin Weiss predicts? Here’s what he sees in the near future: "An historic world-changing event is about to crush the U.S. economy and stock market."

"Crush"? Is that word too strong? No. Even the International Monetary Fund’s chief, Christine Lagarde, echoes the warning: "The world economy is in a dangerous situation."

Weiss Ratings was the first to downgrade U.S. debt — before the ratings agencies. Weiss has 500,000 readers because he’s been making solid market predictions for 40 years: The 1980s S&L crisis, the dot-com crash in the ’90s, the 2008 credit meltdown and now the new European bank crisis.

So listen closely (and protect your portfolio): The next crisis, according to Weiss, "will destroy the incomes, savings, investments and retirements of millions of Americans."

Yes, destroy.

"It will plunge vast numbers of families into the nightmare of poverty … hunger … and homelessness. Only a minority of investors will survive intact."

Get it? A new and "crushing" global meltdown. Destroying trillions. Most will lose. Only a few will "survive intact." Are you a gambler? Bad odds. On an inflation-adjusted basis, Wall Street has lost trillions of your retirement money since 2000. Are you going to keep betting your future on winning 10%, hoping USA Today’s short-term thinking "strategists" are guessing right?

Or will a "historic world-changing event" crush the American economy, markets … and your retirement? Ask yourself, is gambling on making 10% too risky in 2012? Before you place any bets at the Wall Street casino tables, mull over these 10 "macrotriggers," any one of which could ignite the global "doomsday scenario" that Weiss is predicting.

Trigger 1: Doomsday’s mutant democracy.
"Occupy Wall Street" and the tea party agree: Democracy is dead. "All men are created equal" is now a political fiction. The public has no voice in a nation where wealth buys votes, a naive public is easily manipulated, and elected officials have a price. Capitalism won the battle for the soul of capitalism.

Vanguard’s Jack Bogle warned us: The "invisible hand" no longer serves the public welfare. Today, an insatiably greedy class of "Super-Rich," the 1%, steers America from the shadows, obsessed with restoring the unregulated free-market ideology that loved gambling in the speculative $600 trillion global derivatives that triggered the 2008 meltdown.

Trigger 2: Doomsday’s class warfare.
After our bankrupt Wall Street banks were bailed out in 2008, it became painfully obvious that Bogle’s "mutant capitalism" was self-destructing, killing democracy. Today nobody trusts Washington. Wealth rules government. Polls show the public now believes that no matter who’s elected in 2012, our descent into disaster can’t stop.

Sen. Bernie Sanders of Vermont said it best: "There is a war going on in this country … the war waged by the wealthiest people in America on the disappearing and shrinking middle class of our country. The nation’s billionaires are on the warpath. They want more, more, more. Their greed has no end, and they are apparently unconcerned for the future of this country if it gets in the way of their accumulation of power and wealth."

Trigger 3: Doomsday’s legal conspiracy. In the past generation Adam Smith’s invisible hand" was replaced by an open conspiracy among Wall Street, corporate CEOs, politicians and Forbes 400 billionaires operating with arrogance and absolute power, corrupting America’s soul. This conspiracy has no moral compass yet, ironically, is legal.

Yes, "legal," thanks to the Supreme Court. Wealth buys favorable laws, making even the most unethical, selfish, corrupt behavior "legal" by fiat: All the rewards of capitalism for a Super-Rich 1%, while the liabilities are dumped on the 99%.

Trigger 4: Doomsday’s political anarchy.
Forget buzzwords like "socialism," "oligopoly," "plutocracy," even "republic." Washington is now a pure anarchy with 261,000 high-priced lobbyists fighting for the best budget deals for their clients’ interests, not the public interest.

Our Super-Rich anarchists know the only votes that count are in Congress, where lobbyists are brokering special interests, fighting for a slice of a $1.7 trillion federal budget pie, for special regulations, for tax loopholes, exemptions, loans, earmarks, access to policy makers, agency appointments, defense contracts — you name it.

Trigger 5: Doomsday’s growth economics.
The principle of "growth or die," once a given in economics and politics, is being challenged by new "growth and die" research yet relentlessly subverted by a numbers racket used by traditional economists to hide their manipulation of government, consumer and financial data to deceive investors, consumers, voters, the public.

Most economists work for the "establishment": banks, politicians, CEOs, biased think tanks or the Fed. And all economists have political agendas. They’re more like speech writers, hyping short-term policy agendas, while dismissing long-term consequences. For example, global population will increase from 7 billion to 10 billion by 2050, yet old-school economics pretends natural resources are infinite.

Trigger 6: Doomsday’s neurosciences.
Back in 2002 behavioral science offered investors a level playing field: Psychologist Daniel Kahneman won the Nobel Prize in Economics, exploding Wall Street’s myth of the "rational investor." The behavioral scientists promised to help investors understand our brains and make better decisions: Trust us, and you’ll be "less irrational"; control your brain, and be a successful investor. Wrong. Just the opposite. Why? Your brain is irrational. Always will be. You cannot win: Wall Street quants are light-years ahead of your amateur "brain rewiring." They know you’re vulnerable, easy to manipulate. They hire the top global neuroscientists for their casinos. The house always wins.

Trigger 7: Doomsday’s casino technologies.
Sophisticated new technologies, mathematical algorithms and neuroscience all guarantee Wall Street insiders’ huge margins in gambling at the global derivative casinos, by leveraging fees, commissions and deposits from Main Street’s "dumb money."

Today Wall Street is even more obsessed, grabbing for high-risk profits in the dangerous "new normal" of high volatility, increasing risks, lower returns. Sadly, average investors are no match for Wall Street’s "high-frequency traders," who easily win by huge margins at this rigged game. Still, naïve investors keep betting, despite studies warning that the more you trade the less you earn.

Trigger 8: Doomsday’s global warfare. The Pentagon math is simple: By 2020 "warfare will define human life," while global population is on its way toward its explosion from 7 billion to 10 billion. Commercial, political and ideological forces drive globalization, all competing for scarce resources. This is "the mother of all national security issues," warns the Pentagon.

Unrest will "create massive droughts, turning farmland into dust bowls and forests to ashes. Rather than causing gradual, centuries-spanning change, they may be pushing the climate to a tipping point. By 2020 there is little doubt that something drastic is happening.

As the planet’s carrying capacity shrinks an ancient pattern re-emerges: the eruption of desperate, all-out wars over food, water and energy supplies and warfare defining human life."

Trigger 9: Doomsday’s cycles of history.
Bubble-and-bust financial cycles have been well-documented for eight centuries. Yet humans seem never to learn the lessons of history. Euphoria blinds us in boom times. Risk is denied. Bubbles blow. Meltdowns happen. We deceive ourselves: "This time is different!" Wrong.

In "Colossus: The Rise and Fall of the American Empire," financial historian Niall Ferguson warns: "Collapse may come much more suddenly than many historians imagine. Fiscal deficits and military overstretch [suggest] that the United States may be the next empire on the precipice. Many nations in history, at the very peak of their power, affluence and glory, see leaders arise, run amok with imperial visions and sabotage themselves, their people and their nation."

Trigger 10: Doomsday’s retirement investing.
You need a survival strategy. Barton Biggs, the former Morgan Stanley guru and now a hedge-fund manager, warns "Super-Rich" investors: Learn survival skills. In his "Wealth, War and Wisdom," he foresees "the possibility of a breakdown of the civilized infrastructure" — a doomsday scenario. "Think Swiss Family Robinson," he advises.

"[Y]our safe haven must be self-sufficient, capable of growing food, well-stocked with seed, fertilizer, canned food, wine, medicine, clothes. And be ready to fire a few rounds over the approaching brigands’ heads, to persuade them there are easier farms to pillage." But that won’t work for the other 99%, the Main Street investors. Studies now show most don’t have enough saved for retirement today, let alone survival in a 2020 jungle.

Has America already passed the point of no-return? Can we change course?

We must see a paradigm shift in how our leaders think, says Jared Diamond, in "Collapse: How Societies Choose to Fail or Succeed." America needs leaders with "the courage to practice long-term thinking, and make bold, courageous, anticipatory decisions at a time when problems have become perceptible, but before they reach crisis proportions."
And that will never happen, says Jeremy Grantham, whose firm manages $100 billion: "It’s more or less guaranteed that every time we get an outlying, obscure event that has never happened before in history," our leaders in Washington, Wall Street and corporate CEOs "are always going to miss it." Always. Remember the 2008 meltdown? And if today’s banal political discourse about the 2012 presidential election is any indication, our leaders are guaranteed to miss the next one, too.

Bottom line: Underneath America’s endless political drama lie deep wounds that are widening the gap between the "Super-Rich" and the other 99% of America, a wealth gap that’s as wide today as before the 1929 crash.

Now, as then, we know the "Super-Rich" don’t really care about the needs of the rest of America. The greed of the "Super-Rich" is insatiable. For them, more is never enough.

So without a fundamental shift in the brains of our leaders’ thinking, the 2020 timetable projected in the work of the Pentagon, Ferguson, Grantham and others will mark the final countdown, the inevitable ignition of "Doomsday Capitalism."

New Greek Government Runs Out of Steam
by Ferry Batzoglou - Spiegel

Six weeks after forming a transitional government to overcome its crisis, Greece is still failing to deliver its promised reforms. The cabinet of Prime Minister Lucas Papademos is deeply divided and has lost the public's confidence. Even the most urgent measures have ground to a halt.

The president of Greece's SEV business federation, Dimitris Daskalopoulos, recently invited journalists to his imposing neoclassical headquarters in Athens. He straightened his tie, leaned forward and with a grim expression spoke into half a dozen microphones arrayed in front of him. "Now the issue is simply whether we remain in Europe or not. The governing parties have an obligation to work together honestly to finally banish the nightmare of a return to the drachma. If this government doesn't get it right, Greece will go hungry."

His dramatic appeal was ignored, once again. The Socialist PASOK party, the conservative-liberal New Democracy party and the far-right LAOS party formed a transitional government six weeks ago under non-partisan former central banker Lucas Papademos. They vowed to avert a looming state bankruptcy. But they remain as divided as ever.

Instead of getting down to business, they are absorbed in policy wrangling that seems absurdly trivial given the scale of the tasks they face. At a cabinet meeting last Thursday, Finance Minister Evangelos Venizelos and Transport Minister Makis Voridis of LAOS fell out over a draft law to accelerate amicable divorces. Marriage, Voridis argued, was "a central component of our value system" -- therefore LAOS could not agree to the law. Papademos remained silent.

This isn't the first time the LAOS minister has blocked a decision. Recently he resisted the complete liberalization of the issue of taxi licenses, and publicly threatened to resign.

'The Negotiations Have Run into Major Difficulties'
To its credit, the Papademos government mastered two important challenges early on: it secured the payout of the sixth international loan tranche of more than €8 billion ($10.45 billion) from the €110 billion European Union and International Monetary Fund bailout package agreed in May 2010. And the parliament has passed the state budget for 2012.

But since then, Athens has failed to deliver on the binding reforms and spending cuts it had pledged in return for the cash. The top priority is the exchange of Greek government debt agreed at the EU summit on Oct 27. Under the deal, private creditors will voluntarily write down 50 percent of their loans.

But under the terms of the summit agreement, the Greek government must reach an agreement with creditors before the end of 2011 so that the bonds can be swapped for new securities at the start of 2012. It is clear that Greece won't make that deadline. "The negotiations have run into major difficulties, we are working day and night to find a solution," Venizelos admitted.

The sticking points appear to be the levels of interest rates that Greece will have to pay for new bonds and the size of the voluntary debt cut. Even if an agreement is reached, there is doubt about whether all private creditors will stick to it. Spanish hedge fund Vega, for example, has already pulled out of the talks and threatened legal action if the losses amount to more than 50 percent. If the debt swap fails, the entire 2012 budget will be null and void because it depends on drastically reduced interest payments on Greece's government debt.

Reforms Have Ground to a Halt
The October EU summit also promised Greece an urgently needed further megaloan totalling €130 billion -- but only if the country meets strict conditions that amount to political dynamite. The reforms undertaken so far in return for the 2010 aid package were so unpopular that the country is at the breaking point. Indeed, further pain will be unavoidable. Despite all the cuts this year, the government has to close an additional budget hole of €3.3 billion due to the unexpectedly severe recession.

The extent to which Greece's reform drive has slowed under Papademos can be seen in many areas:
  • The privatization program has completely ground to a halt. The plan was to sell off €50 billion of government-owned assets by 2015, but so far only €1.7 billion has been raised. Why? Because the government first wanted to implement the debt swap.
  • Labor markets have yet to be freed up and deregulated.
  • The program of public sector layoffs is a fiasco. Instead of the planned 30,000 job cuts, only around 1,000 workers have been transferred to a so-called labor reserve by the end of 2011.
  • The merging or winding down of public authorities is proceeding at a snail's pace.
  • The modernization of the civil serice and of the inefficient health service is plagued by delays.
  • The planned third round of pension cuts has come to a stop. Additional pensions are to be cut by between 15 and 40 percent -- but the New Democracy party in particular is blocking the process.

On Friday, Papademos, who is virtually a lame duck prime minster, met the party leaders to sound out what can still be done before the next general election -- and when it is to be held. Feb. 19 has so far been scheduled as the date for the election.

It's not suprising that New Democracy leader Antonis Samaras in particular wants to stick to that date, given a recent opinion poll that puts his party at 30.5 percent, 12.5 points ahead of PASOK. But after a PASOK party meeting on Tuesday, Finance Minister Venizelos stated through a spokesman that the "elections will take place after Easter at the end of April," which would give the transitional government more time to implement the tax, pension and justice reforms that have been demanded by the EU and IMF in exchange for bailouts.

Lawmaker Gets €1 Mln Lottery Win
The transitional government started out with a lot of goodwill from the Greek public, but it has lost that trust in record time. When it was formed, some 48 percent of Greeks said they had confidence in the government -- but only 26 percent still do today. And the proportion of Greeks who distrust Papademos has surged to 65 percent from 38 percent. Almost four out of five Greeks now think their country is heading in the wrong direction.

Public sentiment is unlikely to be improved by the publication of the private assets of the country's 572 leading politicians. It's no surprise that party leaders and members of government are well-off -- all lawmakers have had to disclose their finances for years.

But attention has focused on 11 politicians whose 2009 asset statements reveal that they withdrew substantial sums from their accounts, and who are refusing to say where the money went.

Meanwhile, one LAOS member of parliament, psychiatrist Vaitsis Apostolatos, can claim to be Greece's luckiest politician. Suddenly he had €1 million in his bank account, which he said had come from a lottery win.

Despite the gloomy outlook for 2012, there are still some politicians who are determined to cheer the nation up with a touch of Christmas humor. Gerassimos Giakoumatos, a doctor and a conservative member of parliament, wished all Greeks a "Happy New Year with good health and above all luck." After all, the passengers on board the Titanic had all been healthy, he said. "They just weren't lucky."

Angela Merkel's economic adviser Weder di Mauro refuses to rule out eurozone break-up
by Andrew Trotman - Telegraph

One of German Chancellor Angela's Merkel's economic advisers, Beatrice Weder di Mauro, has refused to rule out a break-up of the eurozone, in an interview published on Thursday. Beatrice Weder di Mauro warned that unless the financial crisis is intercepted quickly, it can lead to a recession in Germany

Ms Weder di Mauro, a member of the German Council of Economic Experts, said that while the collapse of the single currency would be "bad for everyone involved", it cannot "be completely excluded".

When asked about a potential split, the 36-year-old Swiss economist told Germany's "That would be bad for everyone involved - but not completely excluded. The policy has been trying for almost two years to contain the crisis and to draw firewalls. However, these walls are not rich yet."

She also warned that unless the financial crisis is intercepted quickly, it could lead to a recession in Germany, with the economy contracting 0.5pc, and leading to an increase in unemployment.

"[We need to] get the crisis under control quickly now," Ms Weder di Mauro said. "Then the German economy in 2012 is expected to grow by around 0.4pc. But [if] the crisis should lead to zero growth in world trade, a contraction of the economy by 0.5pc is possible. Then, jobs [would be] in jeopardy."

The comments are likely to add further pressure on Ms Merkel, who has repeatedly refused to entertain thoughts of an EU collapse, even stating last month that "it's never going to happen".

However, Ms Weder di Mauro blamed politicians for the two-and-a-half year eurozone debt crisis. "The crisis was initially underestimated [by politicians] and too little was done. Now they sometimes cannot act as fast as they want. This is a problem, because the markets are nervous and impatient," she said.

"Some countries have taken part and individuals over the years [have] too much debt. The banking crisis has also driven the national debt. Now the fear is great that they cannot repay the debt.

"We need a triad: over-indebted eurozone nations must submit to a long-term insolvency rule. The others must undertake to reduce debt and stabilize the government budgets. With a debt settlement pact, the debt ratios may fall below 60pc over 20 years. This requires that the short-term interest rates are pushed through [with] mutual guarantees to a realistic level.

"If we succeed with a debt settlement pact, to stick together to stabilize the euro, no significant losses are expected. Failing that, consequences and costs are incalculable."

China Debts Dwarf Official Data With Too-Big-to-Finish Alarm
by Michael Forsythe and Henry Sanderson - Bloomberg

A copy of Manhattan, complete with Rockefeller and Lincoln centers and what passes for the Hudson River, is under construction an hour’s train ride from Beijing. And like New York City in the 1970s, it may need a bailout.

Debt accumulated by companies financing local governments such as Tianjin, home to the New York lookalike project, is rising, a survey of Chinese-language bond prospectuses issued this year indicates. It also suggests the total owed by all such entities likely dwarfs the count by China’s national auditor and figures disclosed by banks.

Bloomberg News tallied the debt disclosed by all 231 local government financing companies that sold bonds, notes or commercial paper through Dec. 10 this year. The total amounted to 3.96 trillion yuan ($622 billion), mostly in bank loans, more than the current size of the European bailout fund.

There are 6,576 of such entities across China, according to a June count by the National Audit Office, which put their total debt at 4.97 trillion yuan. That means the 231 borrowers studied by Bloomberg have alone amassed more than three-quarters of the overall debt.

The fact so few of the companies have accumulated that much debt suggests a bigger problem, says Fraser Howie, the Singapore-based managing director of CLSA Asia-Pacific Markets who has written two books on China’s financial system.

"You should be more worried than you think," he said of Bloomberg’s findings. "Certainly more worried than the banks will tell you. "You know how this story ends -- badly," he said.

Repayment Doubts
The findings suggest China is failing to curb borrowing that one central bank official has said will slow growth in the world’s second-largest economy if not controlled. With prices dropping in China’s real estate market, economists warn that local authorities won’t be able to repay their debt because of poor cash flow and falling revenue from land sales they rely on for much of their income.

Provinces and cities are going deeper into the red to finish projects, from the Manhattan on the east coast, to highways in northwestern Gansu and a stadium fronted by Olympic rings in Hunan, central China. Many were started as part of China’s stimulus program to beat the 2009 world recession. The financing companies accounted for almost half of the 10.7 trillion yuan in all local government debt tallied by the official audit.

The 231 borrowers whose public filings were reviewed by Bloomberg raised a combined 354.1 billion yuan by selling securities this year. They have credit lines from banks of at least 2.3 trillion yuan that have yet to be drawn down, the documents show.

Rising Lending
Bank lending continues to rise, Bloomberg found, even after China’s banking regulator repeatedly warned banks to control risks associated with it and speed up repayment.
Forty-seven of the 56 local financing companies that issued prospectuses from Oct. 1 through Dec. 10 said their debt load had increased this year. The combined debt of those issuers rose 10 percent from the end of 2010.

What’s more, adding up lending by bank also raises the question as to whether China’s lenders are understating their exposure to local government debt. Only 113 of the local government borrowers disclosed such a breakdown; and yet this small group appears to account for an outsized portion of what the banks have said is their overall lending.

Data Disparities
For example, China Construction Bank Corp. (939), the world’s second-biggest bank by market value, has lending to those 113 local government borrowers of 250 billion yuan. That’s 43 percent of the 580 billion yuan the bank said it had extended in loans to all such borrowers at the end of June. The bank has untapped lines of credit to the vehicles of a further 341 billion yuan.

Disparities like this suggest lenders may have bigger risks than they’ve disclosed publicly, says Charlene Chu, a banking analyst at Fitch Ratings Ltd. in Beijing. China Construction Bank said it stood by its total for loans to local governments and that cash flow from them was "good." Nonperforming loans to such companies amounted to 6.5 billion yuan, or 1.11 percent of the total, and the lender had set aside provisions of more than three times that, it added in an e-mailed response to questions.

The prospectuses offer a rare window into borrowing by the local government financing vehicles. The issuers disclose total debt and often details of their loans and lines of credit from banks and trust companies. The data are not consistent, with some reporting total debt as of the end of 2009 and some as recently as Sept. 30 this year.

'Too Big to Complete'
Local authorities, who shoulder most of the infrastructure spending in China, have to keep borrowing to complete projects so they can generate cash flow needed to start paying debt back, said Vincent Chan, head of China research at Credit Suisse Group AG (CSGN) in Hong Kong.

Yao Wei, an economist at Societe Generale (GLE) SA in Hong Kong, says another 7 trillion yuan of debt will be needed to finish projects in the government’s five-year plan through 2015. "At some point the central government will realize this is too big to complete," said Yao. Banks will need to be recapitalized as bad loan rates rise, she said. At least 1.4 trillion yuan of soured debt was taken off banks’ books after China’s last lending crisis which began in 1998.

Senior Chinese banking officials themselves have been raising alarm bells. Xie Duo, director general of financial markets at the People’s Bank of China, told a Nov. 23 Beijing conference that local governments depend too heavily on bank borrowing and failure to solve the problem will hurt economic growth. China’s banking regulator in November asked lenders to control the risks associated with the vehicles and said that slumping land sales mean some projects may run out of funding.

Loans Invested
Loans to local government companies aren’t a problem because the projects will generate returns, even if not immediately, said Huang Jifa, deputy general manager for investment banking at Industrial & Commercial Bank of China (601398) Ltd., the country’s biggest lender.

"The money that Chinese local governments have borrowed is not like the money people borrowed in Europe or Greece," Huang said in a Nov. 24 interview. "The Chinese government’s borrowed money is all invested. Many projects will have returns."

The bank says it had extended 931 billion yuan of such loans as of June 30. Outstanding local government financing vehicle-loans at the end of the third quarter declined from the first half, an ICBC spokesman said. He wouldn’t comment further.

Construction Boom
A building boom by thousands of local governments became the backbone of the country’s stimulus program started in November 2008 -- on borrowed money. The financing companies were created starting in the 1990s and enabled provinces, cities, counties and townships to bypass rules barring most of them from directly selling bonds.

Projects undertaken include a stadium, which resembles Beijing’s iconic Bird’s Nest Olympic venue, in Jinan, the capital of eastern China’s Shandong province; and a superhighway in the country’s second-poorest province of Yunnan that stretches into the foothills of the Himalayas, where there are no cities of more than 1 million people.

In Tianjin, about 160 kilometers (99 miles) southeast of Beijing, a sea of hundreds of construction cranes stretches along both sides of the river at an oxbow that gives the Yujiapu financial district its Manhattan-like shape, testimony to the scale of China’s ambitions. Downriver are the ruins of centuries-old forts stormed by British and French troops during the Second Opium War in 1860.

Thousands Evicted
To build Yujiapu, Tianjin officials are piling onto borrowing that is already at least almost half a trillion yuan - -equivalent to half the annual per capita income of the city’s 13 million people. More than 5,000 people were moved out of the area starting in 2008 to make way for the project, among the millions nationwide evicted from homes to make way for China’s urbanization projects.

The planned 15.2 million square meters (164 million square feet) of office space by 2020 in Yujiapu and across the Hai River in Xiangluo Wan, or Conch Bay, is more than one-third of the 450 million square feet in Manhattan.

One of the companies building Yujiapu -- Tianjin Binhai New Area Construction & Investment Group Co. -- sold 10 billion yuan in bonds in November. It earmarked 1 billion yuan from the sale to fund the construction of the district’s transport hub, which includes a high-speed rail line that will cut the time to Beijing to 45 minutes. In the first half of the year its debt, mostly from banks, rose 11.9 percent from the end of 2010 to 71 billion yuan, according to the prospectus.

More Loans Needed
More borrowing is needed, Tianjin Vice Mayor Cui Jindu said Sept. 16. New loans to the city’s financing vehicles may slump by as much as 140 billion yuan in 2011 from last year’s level as lenders curb risks and boost support to small and medium-sized businesses, he said.

"If the banks don’t give us any new loans, there will be problems," Cui said, saying some projects in the city may not get completed. Tianjin had "no problem" repaying loans this year, having to that date paid off 33 billion yuan of the 39.5 billion yuan in principal due this year, he said. Another 60 billion yuan is due in 2012, Cui added.

Some 14 of 122 planned buildings are under construction in Yujiapu, as are all 48 skyscrapers in Conch Bay, said Xu Fei, vice-chairwoman of the office of the Tianjin Binhai New Area CBD Commission, as she stood in front of a brightly lit model of the future city.

Rockefeller Center
They include a 588 meter-high tower, taller than the 541 meter-high 1 World Trade Center currently under construction in the real Manhattan, being built with the help of the Rockefeller family’s Rose Rock Group. Steven Rockefeller Jr. attended a Dec. 16 groundbreaking event for the project, which includes the skyscraper inspired by the Rockefeller Center in New York, Zhao Jia, an outside spokeswoman for Rose Rock, said. The Lincoln Center is advising on the construction of a performing arts center.

Yujiapu’s resemblance to the Big Apple extends to its rising debt that analysts like Howie say is unsustainable. New York was near bankruptcy in 1975 after a succession of overspending administrations, before then-President Gerald Ford agreed to lend it $2.3 billion.

"In many of these projects, like the mini-Manhattan, it’s never going to make money," Howie said. "Maybe the government can write a check from somewhere else. But that means education gets affected, health gets affected. There’s a cost somewhere else, because they’re wasting all these resources."

Bond Sale
Tianjin Infrastructure Construction and Investment Group Co., another state-owned builder working on Yujiapu, is the most heavily indebted local government financing vehicle in China to disclose its finances in bond prospectuses this year with 291 billion yuan in debt. It sold 3 billion yuan of bonds in April.

An official with Tianjin’s foreign affairs office said no one was available to answer questions about whether the city’s financing vehicles had sufficient cash flow to service their debts.

The true level of local government debt nationwide is hard to ascertain because the borrowing vehicles are mostly opaque. There’s even disagreement over how many exist. The People’s Bank of China, the country’s central bank, said in a June 1 report there were more than 10,000. In a separate study, China’s banking regulator tallied 9,828 as of the end of Nov. 2010, according to an unpublished report cited by the 21st Century Business Herald in March.

'Lending Binge'
"It’s very likely that senior government leaders have no way of knowing which numbers provide the best picture of the evolving lending binge China’s banks seem to be on," said Carl Walter, who retired as chief operating officer in China for JPMorgan Chase & Co. (JPM) earlier this year and is co-author with Howie of "Red Capitalism," an analysis of China’s banking system.

The audit office said in an e-mailed response to questions that it counted debt that local governments have responsibility to repay, that they have guaranteed, or other debts that they may be liable for. People’s Bank of China didn’t answer faxed questions. An official with the China Banking Regulatory Commission said to use the audit office’s figures.

The number of loans going bad will rise because of the borrowers’ poor cash flow, according to a November report from London-based HSBC Plc. Around 68 percent of 184 local financing companies that have sold bonds analyzed by HSBC had a return on capital lower than 5 percent, the benchmark lending rate last year, compared with 37 percent for all 499 corporate issuers it studied, the report said.

Loan Mismatch
"One of the problems with the local government financing vehicle loans issued in 2009 was there was a mismatch between the duration of the assets and the duration of the liabilities," said Michael Werner, a banking analyst at Sanford C. Bernstein & Co. in Hong Kong. "If you’re building a railroad or a highway, it takes several years and you’re not going to get direct revenues."

Take Gansu Provincial Highway Aviation Tourism Investment Group Co. The company builds roads across the arid province, including a 3.4 billion-yuan, 235-kilomter stretch of high-speed expressway along the ancient Silk Road to Jiayuguan, at the westernmost pass of the Great Wall of China.

Its total debt surged 29 percent in the first nine months to 15 percent of the province’s gross domestic product last year. The company’s entire 2010 operational cash flow was 3.04 billion yuan, while it had 55.9 billion yuan in bank borrowing reported at the end of September. The revenue wouldn’t cover interest payments at China’s standard lending rate of 6.56 percent, let alone paying down principal.

Interest Rolled Over
Fortunately for Gansu Highway, it doesn’t have to. Almost half of its outstanding loan principal and interest due this year -- 24.1 billion yuan -- is being rolled over into its outstanding bank debt, and the company plans to repeat that exercise every year until at least 2019 when it is forecast to owe lenders 148.9 billion yuan, according to a chart in the prospectus it issued for a 2 billion-yuan bond sale last month.

Gansu Highway’s situation encapsulates the problem of local government borrowers, which often have minimal or no plans to repay debt aside from borrowing more money, says Fitch’s Chu.

"In the past, Chinese banks could carry borrowers like this indefinitely," she said. "But today they don’t have the large cash reserves they used to to do this. I don’t see how all of this doesn’t turn into a major problem at some point."

Lei Wanming, the deputy Communist Party secretary for the Lanzhou-based company, said Gansu Highway had no problem covering interest and principal payments.
"You can’t look at look at Gansu roads just from an economic perspective," he said, citing the benefits they will bring to poorer regions and its role in helping to eventually connect China and Europe with high-speed expressways.

Municipal Bond Trial
China’s government has taken steps in the past four months to help local governments as their debt comes due. It has urged them to sell assets and allowed a pilot program for cities including Shanghai and Shenzhen to issue bonds directly for the first time under Communist rule, reducing their borrowing costs.

Standard & Poor’s upgraded Bank of China Ltd. (3988) and China Construction Bank on Nov. 30, saying there was a "very high" likelihood of lenders getting government help in the event of financial distress. The new ratings are higher than most of their largest U.S. rivals including Bank of America Corp. and Goldman Sachs Group Inc.

Slumping Bank Shares
Even so, shares in the four biggest commercial banks in China -- China Construction, ICBC, Bank of China and Agricultural Bank of China Ltd. (601288) -- have tumbled an average 23 percent this year in Hong Kong. The banks have loans to the 113 local government borrowers that disclosed such information of 832 billion yuan, Bloomberg found.

That’s almost one third of the combined 2.57 trillion yuan in loans extended to all such financing vehicles that they declared as of June 30. The banks had another 1.19 trillion yuan in unused lines of credit to those companies.

Bank of China President Xiao Gang, speaking at the Asia Pacific Economic Cooperation summit on Nov. 12 in Honolulu, said that most of his bank’s lines of credit to local government financing vehicles were conditional, and only a minority of them were irrevocable. Agricultural Bank said in an e-mailed response to questions that its loans were mainly to cash-producing infrastructure and qualified port and highway companies.

Property Price Risk
Local governments’ reliance on land sales for revenue means a drop in property prices may expose weaknesses in the borrowing, Huang of ICBC said. "The real problem is the real estate market cannot fall, the price can’t go down," he said. "If the property market really falls, the local government financing vehicle problems will really come out. Not only will they have problems, but the banks will have problems."

There are signs the market is already declining, with residential property prices falling in November from the previous month in 49 cities of the 70 measured, the worst performance this year. The cities of Guangzhou in the south and Wuhan in central China canceled land sales in the last three months.

Tianjin, which isn’t among the cities piloting municipal bonds, was reliant on land sales for 41 percent of its income in 2009, according to China Index Academy, a Beijing real-estate research firm.

That doesn’t bother Xu Hongzhi, the chief accountant for Tianjin Binhai Construction, which is building Yujiapu’s transport hub. He said that the company can pay its debts because the area’s economy is growing at 10 percent a year.

"There is no risk," he said.


1 – 200 of 221   Newer›   Newest»
ex VRWC said...

Hey Ilargi,

I am still consistently frustrated by the lack of comprehension about the political nature of our crisis, especially among 'conservatives'. I have dedicated my efforts to creating a series of songs, having them professionally produced with videos, and a youtube campaign to get certain key points out there. This one is having some success:

The ZIRP Song

Along with this I am developing a series of straightforward arguments to use to speak with people. Here is an example:

"I think you will agree there have been a ton of bailouts and free money handed out by the Fed and Congress, right? Well, where is that money? Have you seen any of it? Has anyone you know seen any of it? Is it running around in the economy, creating jobs? No, of course not. So where is it? Its either lining the pockets of connected bankers, or it is being used to speculate to bid up the prices of the tings we need, like food and gas. Thats where it is. And the problem is a system of cronyism whereby the politicians enable this, because it funds their campaigns and they profit from it themselves."

I think arguments like this have a chance of success. I really think its time we take it to the masses in a way they can connect with. This is why I like your diatribes - they are to the point.

scandia said...

@Ilargi, I was hoping you would post an overview of conditions. Thanks.
Recently I have come to suspect there is a cat herder, that 17 separate,sovereign governments is an illusion.
Who's " The Man " the primo patron? Perhaps there is no such being. Perhaps the unwinding of complexity creates a centre stage for technocrats?

scandia said...

@exVRWC,,,good work! Is that you on guitar?

Ash said...

ex VRWC,

That song was great. I'm always looking for good, relevant and/or inspiring tunes to listen to while I'm on the comp. What else you got?

ex VRWC said...

Hey I play guitar but no, I had these produced by a demo producer from the UK named Nigel Cuff who is a great guitarist. An old friend who used to drum in my band did the videos. You don't want to hear me singing these! I stick to songwriting. The songs are simple but they are a product of 4 years of study on sites like these, trying to gain a clear view of the economy and what is driving it. I salute Ilargi and Stoneleigh for their great efforts here, especially since they aren't tainted by being traders or peddling Gold products.

Check my channel, there are 4 songs there so far, with more in production, including one called 'Cash Stuffed Heads' that is a frontal attack on money in politics, that is almost ready to roll. We need exposure - spread them around!

Kurt said...

Carl Futia sees things a bit differently:

Here are four daily bar charts which together paint a clear picture of the economic forces at work in the markets over the past few weeks and for the coming few months.

The European Central Bank has decided to bolster the liquidity of the EU banking system by buying sovereign bonds from private banks for euros and then putting them on the ECB's own balance sheet. This policy should send the euro-currency down against the dollar, and indeed that is what we see in the euro-currency daily chart (second from top).

This ECB policy is designed to avert a banking crisis which would tank the entire EU economy. European stock markets right now think the ECB will attain this policy goal as you can see from the top chart of the French CAC stock market index - while the Euro has tanked the CAC has stabilized and even shows a series of higher lows which bodes well for the immediate future.

The US stock market has been worrying about fallout from Europe putting pressure on US banks and even threatening another banking crisis in the US. But as you can see in the bottom chart of the S&P bank stock index, US bank stocks are actually outperforming the S&P itself - this index is above not only its 200 day moving average (red line) but also above its October 27 high (green dash line). The market seems to think that better times are ahead for US banks.

Finally note the second chart up from the bottom which shows the performance of the Philadelphia stock exchange housing stock index. Like the S&P bank stock index it is trading above its October 27 top as well as above its 200 day moving average. This suggests that a recovery in residential housing construction is underway in the US, a positive sign for the US economy.

Taken together these four charts all suggest that the thick blanket of gloom which currently envelopes the US stock market is about to lift. Better times and higher prices lie ahead.

Alpha Beta Soup said...

I have a question about mortgages. Sorry if this has been addressed before, I have very little free time and don't read even 20% of what I would like to here. This place is a gold mine!

Assuming I don't lose my job and still have income through everything, what will happen to my mortgage if the dollar fails? Right now it doesn't matter if the US dollar is strong or weak, $1000 USD pays $1000 of mortgage, and interest is fixed. Now my fuel bill, THAT might be a different subject, but that is not my question. But what happens if the dollar fails? I think I have heard a dollar of the old currency will probably be worth pennies of the new currency? Right? But could they really take my modest house and make the mortgage worth a million new dollars? And if so, would that make my income a million dollars a year???

I know Ilargi and Stoneleigh suggest to pay off everything, but I have nowhere near enough to pay the mortgage off (my only debt), and my house won't sell due to the foreclosure market, so I have it rented... (also assume that it stays rented and paid for monthly) If things fail, I have no problem walking away from this house, it is not where I want to be if TSHTF, so it makes no sense to me to pay it off.

But to summarize, I am interested in how others think that mortgages (or other debt) will be restructured with a new currency.


jal said...

@ ex VRWC

I recognize that there was a lot of work to do those videos.

My 2 cents.

Go global with your messages.
The USA is not the whole world.
The OWS movement is global.

If you can find a way to get school children chanting your lyrics on the playground then it will go viral on all the school grounds.


Prepare the youth for a different reality.


ex VRWC said...

This is global, though the video might need work. It actually was written to prepare us for a different reality. There is a great rip-your-face-off lead solo in the middle too!

There is Hope

And this is global - it was actually written for the Arab Spring as a protest anthem about direct democracy:
We Will Be Free

Please, contribute your ideas. I will weave them into songs and if they are good, I will have them produced. Lets find some bands to play them, too!

Nick said...

Curious what TAE thinks farming land prices will do on a whole as the euro unwinds. I know the heart of the US midwest corn belt is in a huge bubble, but other productive areas @ <$2000/acre are very tempting places to launch a farming type venture. I'm young have a small amount of debt ~15k student loans and can get financing for a beef/ organic produce operation. I do know how to farm, lived on dairy farm prior to college but am very concerned land prices and food prices could fall enough that I'd merely find myself in yet more debt, as opposed to the more resilient solution I seek. Any thoughts?

el gallinazo said...

ex VRWC and The ZIRP Song

As a former high school teacher, I'm am grading your submission A+ with two gold stars.

Other areas for your talents might be NDAA, otherwise referred to as the Dissenters to Gitmo Act, and SOPA.

What is the significance of your Blogger ID.? Certainly can't refer to Hilary as she is now on the board of directors.

ex VRWC said...

Ha. I adopted this ID a while back (like 5 yeears back), after I realized that the conservative blogosphere was, well, just a little blindered. Though I maintain a conservative world view on many things, too many conservatives grant big business and Wall Street a pass. I am especially fed up with the loudest voices (Rush, Hannity) because of their consistent failure to get serious about many of the real problems. If you google this ID you will find something I wrote in 2008 where I was especially fed up with the conservative mindset in the run up to the 2008 election and thus made the case for Obama-publicans. It was top story on Daily-KOS for 2 days and got 750 comments. That's where I found TAE, from the Oil Drum links on KOS. However, having seen the past 3 years with Geithner/Bernanke running the financial show. I can say that my faith there was, well, just a little misplaced. Oh - well. I still like the moniker!

Frank said...


Outside of the grain belt bubble, I don't see the Euro unwind having a big effect on farmland prices. And even in the midwest, I'd look more at what happens in Asia to pop the bubble.

Obviously, run your own numbers, but $2k/acre within 100 miles of a major city should support a nice veggie operation, which has the advantage of needing no more than 20 acres to do well. Pastured poultry could be integrated as well. If you can keep heritage turkeys alive, they more profitable than anything else, at least here.

I would be more concerned about beef. It requires more land, takes longer, including winter hay, and cattle aren't that cheap either. Not that it wouldn't be profitable, but it would be a long time riding on borrowed money before you saw a return.

If you really want large livestock, consider pastured pigs. They're a much faster turn, have big litters, allowing you to sell weaners unless you have lots of food, and at least for the moment, it may well be possible to get lots of free people food for them.
Check your state laws for what is 'surplus food' [good] vs 'garbage' [bad].

el gallinazo said...

Some random thoughts from a scattered bird brain

--Ilargi - very nice opening monologue.

--Joe from NC - thanks for your kind words and sorry that I didn't mention your previous recommendation.

--A rumbling from the geezer contingent
Since I&S left The Oil Drum Canada and started TAE, it has been primarily a fiscal blog. Ilargi never did a post on how to sharpen a knife or field dress a moose. For people who focus on those skills, the good news is that there or tens of thousands of blogs on the Internet, and a considerable number of them focus on that area. Plus many how to videos on youtube as well. I have used these how tos to repair Mac computers for myself and others, and some are so good that I feel ready to move on to brain surgery.

But the raison d'être for the TAE has been as a survival guide for the 99% going into the collapse, and doomstead preparations are certainly a part of this. Stoneleigh for one, has done a lot of redundant preparation on her doomstead and has quite a bit of expertise in this area, though the vast bulk of her writing here has been in the "abstract" financial area. (And nobody does that better.) I have heard that there will be a separate section when the new site is unleashed that will deal exclusively with field dressing moose and bankstas. Unfortunately for myself, no section in the creative design and crafting of tin foil hats is on the drawing board. And Ash's Diamonds in the Rough focuses mostly in that area as well.

Apparently I am in the contrarian camp here of the geezer demographic, so let me try to explain why certain comments here perturbed Ash who is a staff writer (and more) for TAE. First, it has basically told him that all his study, education, thought, and writing for the past several years isn't worth a bag of dog turds and the only useful cognition in this world revolves around pounding a nail, sharpening a knife, or field dressing a moose. Is it any wonder he might take some umbrage at this? Second of all, Ash as an adult, is quite capable of finding his own course, and even his father would be on very dangerous ground making these comments with this tone. As the father of an adult son, I have learned this lesson the hard way. And finally, for those who think that field dressing a banker is the end all and be all of human cognition, I point to Sarah Palin as Exhibit 1.

-- Hey treasury boy! Is that a Stasi uniform and a Havana?

-- Nick
That is a very good question, but a tough answer. Even the finest farmland is going to decrease in price over the next several years. Stoneleigh has pointed out in her primers that some of the finest farmland went bidless at foreclosure auctions at the height of the GD. One tactic you might consider is to remain employed for the moment and try to pay off your student debt and build up some cash savings. Thanks to the Debt Serf Act of 2005, student debt is the kiss of death. Also, maybe try to line up a private line of credit for the future from a benevolent private lender who may be able to hold onto a few of his marbles in the collapse. And then buy that land when the dust has settles. Buying the land now on credit will surely end in tragedy. Probably not what you want to hear though. CHS in his recent book advises investors after the collapse to look for people and opportunities such as yourself. You might consider an equity arrangement rather than a debt arrangement, which might take the form of a silent partner with proper legal protections, to buy the land when the price is right.

--Alpha Beta Soup, et. al.
Hmmm. "Dollar failure?" Will the dollar get a 40% on the final exam? Sorry - I am a little slow. You must be referring to hyperinflation under a different name.
Perhaps you might pose your question on sites that view short term hyperinflation as a probability.

Nick said...

Thanks for sharing your insights. I agree with your thoughts on livestock, beef are definitely a long haul investment. I am considering the economics of agroforestry, where I grow trees (mainly hazelnuts, oaks, and possibly chestnuts) for food, fuel, coppice, and wood, while rotationally grazing cattle in the alleys and contours between trees. The whole operation is a lifetime investment, and it needs animals with big rumens to process all the grass effectively. Probably a mix of cattle and sheep would be best. In any case numbers look pretty scary to attempt on loaned money. Even with a lucrative sidejob secured. Your ideas on smaller operations produce/pouyltry operations are probably the only somewhat sound economic choice for cash strapped youngsters.

I am leaning with el gallinazo that land will decline in price though. If for no other reason than the best low energy intensively managed farming systems can still barely support a land loan. Going forward in both low energy and low credit environment should mean land prices have to correct right? In any case much to mull over, I think I'll probably sit this year out on any larger land purchases. Thanks for sharing your thoughts on this though guys!

Mr. Kowalski said...

Last week, the ECB engaged in what was called an LTRO-- it was, in short, a sly way of providing cash to it's very cash strapped banks. This operation was just under $500 billion. These people are amateurs. Bernanke did this for US banks to tune of over $7 trillion. Between Draghi and Bernanke, they'll make sure the system itself will survive Greece's default and any other major problems by additional LTROs. There will be rumors of some very large European banks close to collapsing, most of which will be true. France's Agricole was near collapse a month ago

Joe in NC said...

Now about those hammers...


Alpha Beta Soup said...

El gallinazo, sorry I must be using the wrong terminology. This is the only site I read... I was basing my question on info I read on this site. Here, this quoted piece from I&S's 40 ways to lose your future: "#24 Eventually the dollar will collapse, but that time is not now (and a falling dollar does not mean an expanding money supply, ie inflation)"

Does that clear up my post? Or am I still clear as mud?

Ash said...

Frankly, I'm surprised the whole "intellectual vs. practical hands-on experience" issue became about me. Yes, I took some personal offense to Lynford and peripety's comments, because I thought it was obvious that I was being included in the group of people "too intellectual for their own good", and I was right given their responses to me (and yes, po1, Ian was referencing me and my race when he repeatedly accused I&S of "outsourcing" the website).

However, the first thing I made clear in my comment to Lynford was that, regardless of who he had in mind, I was generally taking issue with the assumptions and presumptions about a whole group of people which would seem to include anyone who engages in extensive academic discussion about economics, finance, gold, the meaning of life, etc., which would include I&S and almost every regular commenter here.

I freely admit that I've wasted a good portion of my life learning about relatively useless crap and not nearly enough time learning/teaching practical skills. That's not even an issue for me. My issue was simple - how could anyone presume to know a) how much intellectual discussion helps others reading TAE, b) how much importance anyone else here places on learning/teaching practical survival skills and c) what we're personally doing towards that end? They can't unless they ask first.

I believe Ilargi picked up on that.

Joe in NC said...

El G,

In a previous comment, you mentioned Prechter's forecast of Dow under 1000.  If I remember correctly, this is to happen by the year 2015.  I do not know where to find aggregate earnings info, but sometime in 2010, someone at ZH posted a comment stating that at "current earnings" this would convert to a 1.3 PE ratio for the SPX based on current earnings. Even with the peak oil shitstorm (happening/continuing) the SPX companies will have to deal with, I just can't see earnings collapsing enough before 2015 to make this a realistic forecast.  And I think with current earnings plugged in, the p/e is even lower.  Of course if all the shit hits the fan at once, it shuts down.  I'd be interested in your thoughts on this.  2015 seems early to me.


vangoat said...

El G I think Ash suggested that 'that' line of conversation end. Fine with me, but it seems you wish to continue, so ...

---------- snip from last post

Ash said...


"Lately I have been wondering about all the time spent by what seems to be a younger set who spend much time writing about financial matters and becoming so very wrapped up in them that I doubt that they spend much time learning the skills"


Oh yeah? And who exactly would this "younger set" that "writes about financial matters" be? Are you "wondering" or worrying? Or both? And why either? What are "the skills"? From where and whence do these doubts arise?


I apologize for rising to the bait of what I took as Ash's 'belligerent tone' and 'feeding' him (see my reply, lol). I assume he felt he was being singled out for my comment, but sorry no, he is an editor here and serves a purpose. What I do think is that much time is being spent by some readers/writers that could be better employed.

El G, as I understand it we each have the resources to take care of ourselves in our 'elder years' :) and have developed as well skills that take time to develop. For those not so fortunate, once they have come to the realization that the current system is not going to continue functioning and then to continue day after day to 'overly' concern themselves in the mechanics and complexities of the current practice of economics seems much like a reader of porn who is stuck in that groove to his detriment.

I think it is up to each person to decide where they are and how they fit into this site, but if it is presumptuous of me to suggest that some might be 'stuck', then so be it.

jj said...

What I do think is that much time is being spent by some readers/writers that could be better employed.

There it is again-dripping with arrogance-

WTF gives you the right to judge what other people should or shouldn't be doing with their time?

Try moving out of your mothers basement and step into the real world-

el G--you bitch and whine-way too much-

progressivepopulist said...

Perhaps some polka-dot gallows to lighten the mood:

From NPR- the military is going green.

"Saving money and lives, as well as improving national security, are the goals behind a U.S. military initiative to reduce its reliance on fossil fuels. At one outpost in remote Afghanistan, Marines are using solar power; the Navy is also experimenting with biofuels."

Lynford1933 said...

In an ancient time and a place far away from here there was a Zen monk and his student walking along a trail. They came to a small stream and there was a beautiful young lady with a full length dress who could not cross the stream because she would get her dress wet. The old monk scooped her up and carried her across the stream. He put her down and he and the student walked on.

The student, after an hour or so, said, "Master may I ask a question?"

The old monk replied; "Of course."

The student said; "Our order does not want us to associate with women in any way and yet you actually pick up the beautiful lady."

The monk answered, "I put her down on the other side of the stream. Why are you still carrying her?"

I guess I caused some sort of ripple in the force here because I believe talk has marginal utility in a SHTF situation just like a majority of the depression adults of the 30's I knew thought. When the shooter shows up at your house and demands your stash, maybe you can talk him out of it.

I forgot about it until I was reading here this evening. I'm just trying to find additional ways that I might help my family and my neighborhood. I&S October 'lifeboat' is required reading for all my close friends. Sorry Ash, if I think intellectualism is interesting but not worth much to me, here and now.

Joe in NC said...

jimmyjames @ 7:59 pm - Could not have said it better. Powerful statement.


Ruben said...

re: land.

If I could buy reasonable farmland for anywhere near $2000/acre I would be many acres richer. Run, don't walk. So, you might save some thousands, you will be at work on your land for that much longer.

Stoneleigh has pointed out many times costs will drop, but it may be smarter to buy early in order to secure your supply--especially for things like exotic spare parts.

el gallinazo said...


If Ash were paying you $150 for a 45 minute hour, then it would not be presumptuous.

Alpha Beta Soup

Sorry for my somewhat snarky reply to your question. I mistook your intensions. It's actually a good question and I don't think I can answer it - just take a wild stab. Stoneleigh wrote it and she should answer it :-) OK- Here is my wild stab. She may be using "falling" in the forex sense that no other countries are going to want our dollars for their real physical assets. After the collapse it will be impossible for whatever the US central bank is called, but currently the Fed, to expand the money supply through credit. The only way they could do it would be to start printing a lot of real linen and cotton. At that point, the dollar could become irrelevant very quickly. What I&S repeatedly say is that the Fed will not start printing cotton until such a time as no foreign country will swap physical assets for our pretty paper or electronic digits. At that point, they will print like crazy - it will be their last big swindle. Sort of a reflexive death rattle. I also see it as possible that eventually paper money could become irrelevant without the central banking doing anything. But this would depend on the ability of the central state to extort ransom (taxes) which must be paid in their fiat. Once, for whatever reason, running out of ammunition for example, they lose the ability to extort taxes, its game over for fiat paper.

Joe in NC

I first heard Prechter's prediction on a very interesting Frisby Commodity Watch interview about two years ago. Thanks for asking me, because I thought that Frisby had packed in the towel, but checking into your question, I just learned that he was still doing podcasts and iTunes just dropped my feed. Anyway, here is the link. Frisby was gobsmacked (I only learned that word this year but it has wonderfully disgusting imagery) when Prechter made that prediction.


It's amusing, as the old saying goes, how strange times can make strange bedfellows. Ten years ago I was a flaming lefty, and if someone had told me that in 10 years time I would be supporting a libertarian Ayn Rander for president, I would have put him in a cab, paid his fare, and sent him off to nearest psychiatric hospital. (I still don't agree with a lot of Paul's economics, but being the only unfascist is good enough for me right now).


The the conflicts between DSK and other PTB are starting to make the blogosphere. Or why Hansel and Gretel pushed DSK into the honeypot.

el gallinazo said...


el G--you bitch and whine-way too much-

Skip my comments - I've been skipping yours for a while now :-) It used to be a free country. I just caught the one quoted above because Joe in NC, whom I respect, praised it and it made me curious.

Joe in NC said...

El G - my mistake, I should have excluded the rude comment about you. You contribute as much as anyone does to TAE.


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


I totally agree that $2000 for an acre would mean "buy" for me. But that's if you have the money (which I don't either). The original question was about about getting a loan to buy land with, which is a pretty different matter since you then have to make the payments.

Greenwood said...

"At one outpost in remote Afghanistan, Marines are using solar power; the Navy is also experimenting with biofuels."


Forty years too late.


Skip Breakfast said...

@ elG:

Re: Ron Paul's appeal to lefties. I too was a flamin' lefty. And in many ways continue to hold the ideals dear. But I think we've realised they are now only ideals, as far as "leftist" politics are concerned. The status quo has co-opted left and right. And so there is something incredibly refreshing about Ron Paul's apparent honest and clear intentions. I don't agree with all of his views, but I do agree with his major ones. I like his peaceful, live-and-let-live philosophy. And he is willing to go out on a limb and challenge the status quo, even when it's not necessarily politically expedient. Oops, I suppose this is politics now. Hey, I can't even vote in the US presidential election cuz I ain't American. But It's an interesting phemonemon that lefties are considering a Republican candidate! It shows how upside-down the world can become when we reach a crisis. A lot more things in our lives will be turned upside-down yet too. And besides, I really cannot believe that there is a line where politics ends and finance begins.

el gallinazo said...

"At one outpost in remote Afghanistan, Marines are using solar power; the Navy is also experimenting with biofuels."

Think it has anything with the Pakistanis closing the Kyber Pass? They seem to be pissed off, for some reason, about a predator drone killing a few score of their soldiers in camp for no apparently good reason, even after Hilary sort of apologized. They are going to have to fly in toilet paper for those marines, but not to worry, it will expand the GDP.

seychelles said...

On the topic of bitchin' und whynin', Gerald Celente and Alex Jones do a whole lotta kvetching today describing their difficulties in extracting modest amounts of cash from local banks. The clips are actually kind of amusing

Joe in NC said...

El G - What are the odds on Iran shutting down the Straits?


progressivepopulist said...

Hey Ash,

An idea occurred to me as a result of catching the tail end of all this hoopla. A book idea for you. "The Adventures of the Doomstead Couch-Surfer". Really it just occurred to me that you possess one very important asset that may have gone unnoticed in all the previous discussion. You have earned the respect and gratitude of a fair number of highly and diversely skilled "doomsteaders". Who better positioned to do the doomer equivalent of Willing Workers On Organic Farms (I did it in Italy, and it was a great experience.)

Anyway, book or not, if push came to shove I'm guessing you'd have no shortage of invites to working/learning/conversing visits to doomsteads far and wide. I'll be the first to extend such an invite: you can come down to NC any time of the year (aside from winter, there just isn't much going on) and stay with us for a spell, and while you are here, I'll teach you how to forge and use a hardened and tempered drawknife.

Joe in NC said...

Full disclosure: I give Iran a 1 in 3 chance of shutting down Hormutz. This is a lot higher than a week ago. I think it may happen outside of the "formal" channels. BTW, I have no "bets" on the outcome.


Skip Breakfast said...

The idea of spending time on other people's doomsteads, to learn more and share knowledge and labour is very appealing. I feel like I have so much to learn, having spent too many years sitting behind a desk. This sort of exchange could offer valuable labour to people putting together their doomsteads, while preparing the workers to go off and build their own. My partner and I are planning and preparing our doomstead in New Zealand. Fortunately he's a builder. But all of the knowledge around growing, sailing, fishing, increased self-sufficiency, personal protection, etc., is sorely lacking.

el gallinazo said...

Joe in NC said...
El G - What are the odds on Iran shutting down the Straits?

I don't know, but I think it's a lot higher than Ilargi does. To understand what the odds are you have to understand what their game plan is.

Well, part of the game plan is pretty obvious. We manufactured a new enemy in 2001, a terraist, and this got converted in almost 10 years in a very boiling frogs, methodical fashion to a Stasi police state. OK - it will take another year to get all the way to that. The other part of the plan was to use the military (and the CIA starting their "color revolutions") to capture the oil and gas resources in the middle east and the former Soviet Asian republics, and to encircle Russia and China. They would like to complete the Syrian operation before they target Iran also. They screwed up Russia under Yeltsin because they didn't complete a neoliberal takeover of the Russian state and oil industry, so gaining control of Russian oil and gas is still a really big prize. I can sympathize with the pro-democracy people in Russia, but they are not aware of the sharks swimming just beyond their border and that Putin is what history has ordered for the Russian nation, a ruthless nationalist and brilliant chess player. The Russian alternative is a giant Libya.

Iran may very well be working on a nuclear bomb. If I were the top banana in Iran, I sure as hell would be. If Iran does gain a reasonable amount of nuclear weapons, it could really screw up the game plan by raising the collateral cost too high to attack it. Of course Israel is terrified that Iran could go nuclear. Not because they are afraid of being nuked, but rather they would lose a lot of their regional bully status. Everyone pretty much hates them around the world anyway for their war crimes.

But Iran can definitely shut down the Straits indefinitely. It's really a no brainer. Supertankers are delicate, flammable, without any agility, and huge. Blow a hole in one and you set the whole Gulf on fire. And Iran's missiles can also reach a lot of the oil infrastructure in Saudi Arabia and the Emirates. And the Iranians say they don't even need them. They say that their suicide commandos can take it all out, and who am I to say no? Iran has at least seven different ways to take out the supertankers. A tanker owner would have to be totally crazy to try to send one through once Iran states that they will sink them.

Furthermore, the US is in absolutely no position to try a land invasion in Iran. It would be suicidal. And, of course, the Russian and Chinese response is unknowable, at least to us chickens in the bleachers. Would Russia turn off the gas cock to Western Europe as a response? Angela would be real unpopular as the Germans freeze. So the US and Israel would love to bomb Iran to shit, which of course they can do, but are they ready for $250-300 a barrel crude oil? Maybe yes. Maybe that fits into their over all plan. They would like to get the population of the planet under a billion people and that would be a nice start. But $250 oil is going to cause a bit of civil unrest, so they better get the troops home and their guns pointed where they belong - at American eaters.

All I can recommend is beer, popcorn, a broadband connection, and Depends.

progressivepopulist said...

Willing Workers On Other People's Doomsteads- WWOOPD. A diamond in the rough? Perhaps someone with more time and fewer small children could do a write-up on this one? And of course the learning certainly doesn't have to be one-way. I'd be glad to host someone with expertise in organic gardening, permaculture or fruit/nut trees.

Nassim said...

EVEN before Greece's economic crisis, Dimitris Gasparinatos found it hard to provide for his six sons and four daughters. His wife, Christina, who was struggling to make ends meet with his salary of €960 ($1250) a month and welfare aid of about €460 ($580) every two months, was unhappy and desperate.

Deep in debt, the couple owed money to the butcher, baker and grocer - the very people who had kept them going in the port of Patras, west of Athens. In their tiny apartment, the family slipped increasingly into a life of squalor. ''Psychologically we were all in a bit of a mess,'' said Mr Gasparinatos.

''We were sleeping on mattresses on the floor, the rent hadn't been paid for months, something had to be done.''

And so, with Christmas (Orthodox Christmas is 7th January) approaching, the 42-year-old took the decision to put in an official request for three of his boys and one daughter to be taken into care. ''The crisis had killed us. I am ashamed to say but it had got to the point where I couldn't even afford the €2 needed to buy bread,'' he said.

Desperate families give up children as Greece's financial crisis hits home

Nassim said...

A tanker owner would have to be totally crazy to try to send one through once Iran states that they will sink them.

Even if a tanker owner were willing, insurance would dry up and that would be the end of the matter.

A Fall Guy said...

In looking towards the gathering storm, I believe that we should all aim to shine light in dark places. The tension among commentators here may be indicative of the tension simmering in society that will only increase. I am not talking about anyone in particular (except perhaps myself). While it can be hard to resist reacting to perceived offenses, one should practice such resistance - it is a skill that may be valuable in a future rife with tension and escalation of misunderstandings. Lively debate that bashes around ideas without bashing around people seems more likely to result in positive outcomes.

When I was a municipal councilor in my previous community, the tension and division in the community and among councilors could be cut with a knife. In that time I learned a few adages that help remind me to think carefully before saying or writing strong words, especially responses:

"Be hard on issues, soft on people"

"Don't react - go to the balcony"

I freely admit there is a significant gap between how I wish I behaved and how I actually behave. I find it helpful to try to eliminate emotive language (which usually undermines one's argument) to strive to focus on logical, constructive debate.

I wish you all a resilient 2012

Ruben said...

@A Fall Guy

I found this article to be powerful, and in line with your comment.

The Truth about Violence

A Fall Guy said...


I believe in working towards a positive future (even if the probabilities seem low). If your dream is to run an organic farm, you should work towards that goal, and producing food is important.

I am not qualified to suggest if the risk is too high, but you could separate the concept of "being an organic farmer" from "owning farmland". There are options to farming besides owning the land (e.g. leasing).

It might be worthwhile developing a clear business plan to generate the profit needed to pay land costs, equipment, etc., as well as a contingency plan. This process might help identify the most feasible way forward.

Robert said...

Are economic theories falsifiable? Should The Economist economize on blogosphere economics? Does TAE have competition?

Robert 2

Brunswickian said...

Hidden Agenda Behind "War on Terror": The Conquest of Oil, Gas, Water and Vital Resources

by Pepe Escobar and Lars Schall

Great analysis - I can't see how anyone can read this without the overriding impression of imminent disaster.

Ash said...


Your creativity is only exceeded by your generosity. If that offer still stands in the summer or next spring, I may have to take you up on it. I'm in the "great state" of VA, only a few hundred miles away... and today is a wonderful day, wouldn't you say?

Sorry, got carried away with the rhymes. Seriously, though, I really appreciate your kindness. WWOOPD is a very interesting idea, to the extent people will still find it possible to freely travel around without great cost and risk. Perhaps there is a time limit? It will definitely be included in a Diamond poll.

That reminds me of another aspect of this generational issue. A lot of people in my generation are feeling and are going to feel like they were royally screwed. That's how I felt for a little while, but I've come to terms with it and outlets such as this one have helped with that tremendously.

The fact is, though, that many of us were willingly sold on an unethical and impossible dream, and now there is precious little time or money/wealth to firmly establish a new mode of self-sufficient living. I've been doing just about everything in my power to push myself and my immediate family towards that, as well as a few friends (but only one has really taken the threat seriously).

At the same time, we all have limits bearing down on us. We also have our own passions that we want to pursue, and that takes time, effort and money (or opportunity cost) as well. So it's a precarious situation and delicate balance for my generation, indeed. That's just my opinion, and I know there are many others out there. And none of this is to say that we have it the worst (we don't), we're justified in making excuses (we're not) or anyone else is solely to blame (they aren't).

Greenwood said...

Found the original quote by Hunter S Thompson that has been endlessly adapted to every profession outside of TV.

(Generation of Swine: Tales of Shame and Degradation in the '80s page 43)

I modified it for the New Year and dedicate it in 2012 to the Money Changers masquerading as 'economists'.

"…[Economics] is uglier than most things. It is normally perceived as some kind of cruel and shallow money trench through the heart of the [financial] industry, a long plastic hallway where thieves and pimps run free and good men die like dogs, for no good reason.

[Economists]….for the most part…. are dirty little animals with huge brains and no pulse. Every once in a while, they will toss up a token human like [Steve Keen]…..but these are only the exceptions that prove the hideous rule.

Mainly we are dealing with a profoundly degenerate world, a living web of foulness, greed and treachery... which is also the biggest real business around and impossible to ignore.

You can't get away from [ecomonics].

It is everywhere.

The hog is in the tunnel."



Ashvin said...

Guardian Blog

"Hungary continues to defy the International Monetary Fund -- earlier today its parliament passed a controversial law that wil give the Budapest government more control of the country's central bank.

The vote means that prime miniser Viktor Orban will be able to appoint more officials to central bank's monetary policy committee, potentially giving him significant control of interest rate policy.

The move is a worry because the IMF has indicated that it is unwilling to accept Hungary's request for more financial support unless Orban changed course."

Frank said...

I thought I'd provide something that resembles good news for the year.

Karl Denninger has proven that he can learn. He is now telling his flock of neanderthals two and a half things he never said before:

1. Infinite growth on a finite planet is impossible.

2. The US fiscal problems cannot be solved without massive cuts to the military along with everything else, and

2A. A soldier in North Carolina costs far less than a soldier in Germany.

Hey, it's a start.

Ashvin said...

Spain unveils €8.9bn of cuts but warns deficit will rise

"As part of the measures there will a freeze on civil servants' pay and on government hiring, said Deputy Prime Minister Soraya Saenz.

There will be temporary tax increases for the wealthiest Spaniards to raise €6bn as part of efforts to cut the public deficit to within eurozone limits and persuade markets that the new government can bring the public finances under control.

However, the centre-right government on Friday estimated that the public deficit for 2011 would come in at 8pc of gross domestic product, well above expectations and the official target of 6pc.

Under the former Socialist government the budget shortfall had been cut from 11.2pc of GDP in 2009, but Prime Minister Mariano Rajoy is attempting to bring it down to 4.4pc of GDP next year."

ogardener said...


Ilargi said...

Glennjeff (last thread)

Yes, your idea sounds good, we'll certainly find a space on the new site for your videos.

Yours and anyone else's videos and other lifeboat-related contributions.

It would all need to have some quality and/or other redeeming feature(s), but I'm sure that's obvious.


Joe in NC said...

New post from Golem XIV:

The Miracle of Solvency

"This year the banks are in no better shape than they have been since the debt bubble burst. In fact they are in worse shape because the nations they depend upon for endless bail outs are enforcing more and more savage cuts to social spending of every sort – education, health and welfare, and people are beginning to feel the pain."


jal said...

Something BAD has happened that needs explaining.

Refinery Crunch In Europe

Temporary economic shutdowns of (3), the Petit Couronne, Antwerp and Cressier refineries in January 2012.

Petroplus Holdings AG, is suspending operations at three plants as banks freeze a $1bn revolving loan facility.

The restart of the refineries is dependent on economic conditions and credit availability.

Petroplus Holdings AG is the largest independent refiner and wholesaler of petroleum products in Europe. Petroplus focuses on refining and currently owns and operates five refineries across Europe.

Petroplus owns and operates the Coryton refinery in Britain, the Antwerp refinery in Belgium, France's Petit Couronne refinery, the Ingolstadt refinery in Germany and Switzerland's Cressier refinery, with a combined capacity of about 667,000 barrels per day.

vangoat said...

El G

" If Ash were paying you $150 for a 45 minute hour, then it would not be presumptuous."

Sorry, a little disambiguation is necessary here my friend, you have lost me. All I can get from it speaks of the 'hourly' rate you used as a plumber to fix wizened little old widow ladies plumbing. How Ash and I get involved in that I do not comprehend, we being honourable men ;)

SecularAnimist said...

Of course, the irony is - if you have the means to set up a doomstead - you don't need one.

You are either in the money-market system or out, and if you are out, knowing how to sharpen knives or grow food is going to "save" you. That's a capital scarred doomer mentality, that if you don't have a 19th century skill-set you won't eat. Part and parcel of the ontological crisis that human race is having.

Capital will keep cannibalizing society and disenfranchising people until social forces, force a systemic change - which admittedly could be much worse, but does not have to be.

The biggest threat to peoples survival is property laws and the natural gravitation of capital - which TAE highlights so well.

Post-oil man

Jerry McManus said...

For the gold bugs lurking here, I thought this is interesting:

Positioning To Profit From The Pan Asia Gold Exchange

Game changer? I dunno, but someone pointed out in the comments there that 2012 is the year of the dragon...

The Anonymous said...

"Joe in NC said...I just can't see earnings collapsing enough before 2015 to make this a realistic forecast."

Joe - you would be wise to take Prechter forecasts with a grain of salt. After all, as he was making that same sort of TEOTWAWKI prediction back in 1989.

Prechter has been fairly consistent in his "get out now" calls from 1989 til present. He apparently is of the "timing doesnt matter" school of thought.

Yet, something tells me that those who listened to him and got out in 1989 at DJIA 2,200 disagree...

Eliza Blue said...

From the Dept of Self-Sufficiency:

Dinner gets very local for squirrel-eating Seattleite

Risotto di rodentia, anyone?

Joe in NC said...

El  G,

Thanks for your thoughts on Iran and the link to the Frisby/Prechter interview.  I guess I was gobsmacked by the gold $200 prediction.  Prechter makes a lot of good points.  I'd only seen him in CNBC segments and the announcers were predictably rude and snarky...and constantly interrupting him...same thing they'd do whenever Rosenberg was a quest.  


el gallinazo said...

Joe in NC and The Anonymous

I agree that Prechter's timing leaves something to be desired :-) He seems consistently to underestimate the inertia built into the Status Quo and he alludes to the central banks, particularly the Fed, in his books as pitiful giants. Underestimating your enemy is not the greatest tactic, and Prechter does regard central banking as an enemy. OTOH, aside from timing, his ideas are sound, though this may sound like the infamous Mrs. Lincoln question. From what is going on globally, the much alluded to can seems to have reached a brick wall. The tricks of the bankers are time wise in an inverse exponential death spiral. The time of Prechter's predictions may soon be nigh.

ex VRWC said...


In 2008/9 collapse I heard a lot of talk about letters of credit being curtailed which would lead to a collapse in trade flows. I believe some of this occurred, but I think that the unlimited liquidity backstops put in place eased it all over time. However this time there is nowhere near the amount of chatter about a credit freeze than there was then. I believe the credit freeze is happening more quietly, but it still is happening.

I love Zero Hedge but there people always look at it as a trading opportunity. I would like to hear from contributors here, particularly Stoneleigh, about the potential for credit-related energy disruptions and how to predict them. I look for what I call 'the conduits of real pain' whereby big societal/economic disruptions will happen rapidly, instead of the slow deterioration we are currently witnessing. This will be a clue in my mind to an impending acceleration of the rate of collapse. Of course, one should not wait to prepare (there I said it)!

ogardener said...

Risotto di rodentia, anyone?

A little fancy for me. I just roast em on a stick. Wood pigeon fricasse aint' bad either.

Nassim said...

In 2008/9 collapse I heard a lot of talk about letters of credit being curtailed which would lead to a collapse in trade flows. I believe some of this occurred, but I think that the unlimited liquidity backstops put in place eased it all over time.

ex VRWC,

Here is an article I read a while back about letters of credit in the FT:

The decline of letters of credit

One of the major causes of this changing landscape is the new Basel III framework, which is a set of reform measures and regulations on the global banking sector set by the Basel Committee on Banking Supervision, a group created by the central banks of G-10 nations. Banks from the major financial centers around the world begin adopting the new standards in 2013, but the transition process begins this year.

An oft-cited consequence of the new framework is the negative effect it will have on the availability of traditional trade financing instruments, such as letters of credit. The new standards will require banks to dedicate more capital against letter of credit commitments and other types of financing. The purpose of the changes is to force banks to deleverage their balance sheets to prevent future banking crises. At the same time, banks stand to face a five-fold increase in the cost of providing traditional trade financing, according to an October 2010 report from D&B, a business research firm.

Payment methods based on letters of credit used to be the gold standard in conducting business with foreign customers. As usually used in international trade, an exporter of goods who is wary of the credit quality of the buyer will ask the buyer to issue a letter of credit. The buyer will ask its bank to issue the letter of credit, which is essentially that bank’s promise that it will make the payment for the goods instead of the buyer. The seller of goods reduces the risks associated with the trade by basically replacing the questionable credit of the buyer with the more trustworthy bank. Sometimes the seller’s bank or other intermediary banks will step in to negotiate and verify credit agreements and related documents. The whole process is labor intensive and costly for companies and requires meticulous documentation.

More and more companies are eschewing doing business overseas on a letter of credit basis. A large part of this is due to banks slowly pulling back on issuing LOCs in anticipation of the new banking regulations coming into effect.
“There is a built in prejudice against letters of credit because it’s a mechanism used when you don’t have a lot of faith in the credit quality of the company on the other side of the transaction,” said Bank of the West’s Herrick.

“But as you get to know your customers better, you work your way down to other types of financing,” Herrick added.

That is not to say that letters of credit will fall out of favor completely, Herrick said. It is still a valuable tool for companies doing business with foreign organizations with questionable credit quality or in countries where there is a high political risk, he added. For instance, many companies exporting to Middle Eastern countries still conduct most business on a letter of credit basis, he said.

Expected trade finance disruptions create opportunities for alternative providers

It is difficult to see the role of LC's in an environment where the banks are less credit-worthy than the traders.

Ash said...

@ex VRWC, jal

As Stoneleigh has stated several times, credit acts as the lubricant for trade flows of "real goods" in our current system, or the oil in the system's productive engine if you prefer analogies. That is especially true for international trade between countries with significantly differing legal jurisdictions (i.e. East vs. West), in which private companies rely heavily on letters of credit for imports/exports.

That is something Ilargi mentions again in his post from yesterday:

"In order to keep the basics of their economies going in case of financial disaster, governments will need to make sure they have the means to cover basic necessities. In a world where most of the energy and food is imported, that is a herculean task.

Who's going to issue the letters of credit that make imports possible? And what will they be covered with? Will Saudi Arabia, Russia, China and the US still accept euros when the defection of Greece and/or others makes the future of the Eurozone and the entire EU highly uncertain? No, they will probably want guarantees in US dollars."

The situation is Petroplus doesn't involve letters of credit, but rather a $1bn credit revolver with various banks that has been suspended. It's basically the same underlying concept, though. Credit crunch effects propagating throughout all parts of the global economy and all parts of precarious supply chains, where dysfunction within just one link can create critical gaps between available supply and demand. It seems that is especially true for the energy/oil industry, which has been specialized and optimized for times of expanding imaginary wealth, i.e. credit.

scandia said...

@ogardener, Re " Ballsy ", Trucker does indeed have cajones....I have been pondering the ways and merits of " resistance " after reading Time for Outrage, Indignez-vous! written by Stephane Hessel who opposed the German occupation of France.

Nassim said...

Almost $6.3tn was erased from global stock markets this year as the eurozone financial crisis reverberated across the world in the latter half of 2011, calling into question the future of the world’s largest currency bloc.

Global stock market capitalisation dropped 12.1 per cent to $45.7tn according to Bloomberg data, while the euro ended the year as the worst performing major currency after finally starting to succumb to the continent’s financial and economic woes in December.

Markets stripped of $6.3tn in 2011

Gravity said...

Gravity is a resplendent algorithm.

Alpha Beta Soup said...

El gallinazo, no worries about "snarky", considering I post maybe 4 times a year there is no way you could understand my intentions, and there are so many posters willing to bait and attack, how would you know? While I read enough to know you are one of the good people here, so I knew it was just a misunderstanding. You aren't the type of person to make rude comments without there being cause, or a misunderstanding. Thank you for your comments, it was a different perspective than I had looked at before. Like a gemstone, I like to look at things from all angles before making decisions. Thanks! :)

To JAL - This is the wrong time of year for that kind of news! I hope this doesn't start things rolling there....

Eliza blue - thanks for the article, it put a smile on my face to hear someone balsy enough to admit out loud! (and gave me a local blog to read)

Happy New Year to all, I won't be back for a few days, maybe I can re post my (corrected) question and get some more comments from others But for now, I probably won't see any more comments....


jal said...

Quote of the year!

"It is difficult to see the role of LC's in an environment where the banks are less credit-worthy than the traders."

Bukko Boomeranger said...

" If Ash were paying you $150 for a 45 minute hour, then it would not be presumptuous."

The "45-minute hour" refers to the amount of time you get for your dime when you're seeing a shrink. It's not an obscure reference, although I've usually heard of psych-time as "the 50-minute hour." Maybe shrinks in the Carib and South USArica operate on Jamaican time, eh El G? Anyway, it's subtle snark. The trouble is, when people like The Buzzard make a witticism that's TOO clever, it's often above the mental level of the intended recipient...

Nassim said...

Thanks jal. :)
What I said was pretty obvious.

Joe in NC said...
This comment has been removed by the author.
Joe in NC said...

EU warns wasting environmental resources could spark new recession

Janez Potočnik - European Commissioner for green affairs:

"It's very difficult to imagine [lifting Europe out of recession] without growth, and very difficult to imagine growth without competitiveness, and very difficult to be competitive without resource efficiency."

Sounds like an economist to me - seems paradoxical for the EU commissoner for GREEN affairs to be using the word "growth" so often.

After looking at his profile I see his background is in economics. Shouldn't he have a scientific background? I suspect this is just another i dotted for TPTB.


Nassim said...

re: Petroplus

I really don't think there is a problem there, Europe has too many refineries and I can't see demand for refined products remaining the same with the economies in recession/depression. The oil majors are not short of money for importing and refining oil - exploration/development is another matter.

If it were not for the constant sabre-rattling in the Gulf, the price of oil would have collapsed a long time ago, IMHO.

Frank said...

Nick, some more advice, from experience.

1. Goats and some breeds of sheep (the best breeds for grass fed outdoor operations) are browsers more than grazers.

This is good if you have just cleared land, and want them to eat the sprouts coming up from the stumps.

This is bad if you have an orchard (even a mature one) and they decide apple bark is yummy. My icelandics will girdle any cherry or red maple tree they meet, no mater how big it is.

Some breeds of cattle (American Milking Devon, for one) will do the same.

Other breeds of both species are princesses (even if male) and eat only grass. But for disease and parasite resistance, see 'princess' above.

2. Again, if you're clearing rocky land, a couple years of pastured pigs can be a good investment. If they have enough pasture, you'll be in the black even if you have to supplement them with grain. And you can (should) go in each fall and remove all the rocks and stumps they've rooted up. If you're in New England, the rocks will keep coming, but two years of Tamworth pigs will at least get the land mowable between the trees.

Frank said...


As I understand it, there are three levels of trade/trust.

1. If you like the D&B rating, and he'll like yours, send a PO.

2. Get a letter of credit from a bank your bank trusts.

3. "I know a guy, who knows a guy...."

4. Is of course, do without.

The TBTFs have successfully kicked big pieces of the world back to #3. Fortunately, I know a couple guys down to Keene, who know guys down to Boston, who will trade me diesel for firewood, because they can trade firewood in Keene for something the guy down to Boston will trade for diesel....

Ash said...


Perhaps you are right that the effects of this particular shutdown of refining plants will not create significant shortages by itself. It seems that it would be difficult to tell at this point, but it is of course representative of a broader credit freeze rapidly spreading across banks and industries in Europe, and especially in the periphery.

I also found this comment on the article interesting, and perhaps indicative of how relatively small capacity being taken offline in the oil industry can have out-sized effects on specific markets for oil-based products.

Refineries, once running, have to continuously flow oil and products through the system and many parts are very connected. Here is a quick primer:

* Refineries are often tailored toward specific feed stocks of oil (e.g. crude from very specific producers). Matching a different crude can be difficult, as oil is rarely exactly the same and thus requires refinery tweaks.

* Once crude flows into the first distillation tower, it separates and flows into different parts of the refinery. Understand that if the flow stops at any point, anything downstream stops too.

* It is very important to keep the flows going at all times and its very difficult/expensive to take down part of the plant because of the impacts on other parts of the plant. For example, a furnace in one area that performs cat cracking may run on left over crap from another area. If that area shuts down, the cat cracking can't work because it lacks heat inputs.

I do not know what happened on the finance side, but if market demand is soft enough the refinery would run at a loss, unable to produce a low enough volume to hold prices. That is to say, they HAVE to produce so many barrels of gas, fuel oil, whatever because of the physics/chemistry involved and that level of supply may push prices down making a loss. A refinery can tweak operations, to get more gasoline instead of kerosene and that sort of thing, but the mass of products being produced doesn't really change much (i.e. a higher volume of lighter products or a lower volume of heavier products but mass remains equal).

Jim R said...

I just tried to post to a random thread from a couple weeks ago. Clicked on the RSS list somewhere downstream. Oh well.

The news is, Tepco has announced that Fukushime is now stable! It was a worst-case scenario for the last six months, and it is a worst-case scenario today. The same: stable!

Nassim said...


Of course, I accept your point. However, it is important to remember that everything produced by a refinery has value and someone somewhere will pay for it - even if it has to be stored and transported. Again, the Oil Majors have an advantage over independent refineries - besides the financial advantages - they process and go on to retail a lot of these products themselves. For example, Exxon has a refinery in Fawley, near Southampton in the UK (where I once worked). According to the previous webpage:

Crude oil is transported by sea to the refinery's modern marine terminal which handles around 2,000 ship movements and 22 million tonnes of crude oil and other products every year. Typically, the refinery will process over 20 different crude oils in any one year.

This refinery alone can process 20 different qualities of crude in one year - from a multitude of locations.

Next door, is a huge plant that belongs to ExxonMobil Chemicals - hardly a surprise. Both plants are integrated, but even if one of them stopped working, the other would be able to import its inputs and export its outputs by pipeline, sea and road. In fact, these plants are constantly buying and selling stuff from and to their sister refineries (and competitors) just across the channel at Notre Dame de Gravenchon (which I have visited) and near Rotterdam - as well as any number of other refiners, supermarkets and chemical firms. The cost of transport by sea over such small stretches is trivial compared to the price of these products.

I think economists underestimate the capabilities of engineers. :)

Joe in NC said...

El G,

Read your thoughts on Iran again. Yeah maybe 3 times. I'm curious to know your definition of "suicide commando". I think this may fit into my silly "odds prediction". Who directs this commando?


el gallinazo said...

Thanks Bukko

I didn't respond because the last thing we need here is a flame war. That's so Zero Hedge. The shrinks in the Caribbean do need an extra 5 minutes to recover from a session. Just enough time for a fast rum and Coke with a twist of lime. There's some heavy shit going down there :-)

As to the comments about my former rates as a plumber. St. John is a rich island with a lot of loaded people, but my rates were a smallish fraction of $150. For the rich villa owners, I adjusted my rates upwards whenever I started to get overworked and overwhelmed. I also did a lot of new construction where I worked on a flat bid. I once took on a young Czech helper who lived on a sailboat, but the first Friday I paid him, he got totally smashed at the local nautical bar, Skinny Legs, and broke his arm trying to get back on his sailboat. After that I flew solo until I couldn't get airborne. I often got tips despite my "outrageous" rates for my conscientious approach to problems and appointments. My card read below the phone number, "The other reasonably sober plumber." It was a small island. Rum is cheaper than orange juice. Really. It had a coat of arms with the traditional upright lion in profile on a shield, and before the lion, a crossed pipe wrench and plunger. Underneath the logo it read "A Royal Flush." As to the widows and orphans, usually black, of which there were plenty, I adjusted my rates downward, but I didn't want to embarrass them either with charity. Usually about 20% of my rich rate. The black people just called me hey plummamon - they never knew my real name - el Gallinazo.

el gallinazo said...

Joe in NC

That comment about not needing missiles to blow up the oil infrastructure was a quote from the top commander of the Iranian navy, as posted in an article on ZH a day or two ago. I would imagine a suicide commando is a run of the mill commando on a mission where the odds of surviving it and returning are under 10%.

Joe in NC said...

"A Royal Flush" - like the next morning after drinking all that inexpensive rum. :-)

Joe in NC said...

El G,

I think the Iranians may not want the action to be affiliated in any way to to their navy. Maybe a really unexpected supremely "rogue" attack and after the bodies are ID'd, the finger of blame finds a new home.


Ash said...


Points well taken about the oil majors. It's sad (but not too surprising) that it's always the small to mid-size businesses that get shafted out of the market first, and especially if they happen to be "independent". The banksters would let God's own wind farm file bankruptcy before Exxon Mobile. Not that I feel sorry for any oil refineries, though.

Nassim said...

Your Excellency, I am pleased to present the requested report on the economic outlook for the Great Southern Province of China, currently referred to by the local population as ''Australia''.

Top Secret part one: The Chinese envoy's briefing paper on the Great Southern Province's economic prospects

China top secrets part two: Envoy briefs His Excellency on 'two-track' economy

I wish Satyajit Das were only having fun.

Nassim said...

It is 22:10 over here and the Blanc de Blancs sparkling wine has gone down well. It is a warm 26C degrees (79F).

I wish you all a reasonable 2012. :)

Anonymous said...


An end of year greeting to all.

We here are apparently ten time zones after Nassim because it is 14.00 here and we just sat down to a light lunch in anticipation of a larger meal this evening. A "raclette", if you are familiar with Alpine cuisine (

A quick comment on the recent discussion here about manual know-how versus intellectual pursuits. It strikes me that we all need both, if only for our personal balance. But also because even the best manual techniques, without some understanding and guidance on how, when and where to apply them, lose a large part of their value. Plus, we will all be stronger in one field or another and thus need to compensate by calling on the skills of others. So yes, lets sharpen all we can, our knives, our skills and our wits, and then share.

Ash, it just so happens that I am an expert at sharpening pencils. That might be helpful in the future for your writing, so drop by any time…

That said, I wish all of you einen schönen Rutsch, as the Germans say, into the New Year. And as that expression implies, Hang on tight!, because the year will be something.


P.S. Do not believe the Wiki article about people drinking tea with a raclette, that strikes me as preposterous. On a par with eating mint marmalade with ham... no one would do that…

John said...

I can't find the link you had for info on EMP, do you still have it handy?

Ash said...

I believe this new year's eve warrants liberal consumption of champagne. And here's a toast to bring in the New Year...

"History repeats itself, first as tragedy, second as farce." -Marx

The spectre of 1932: How a loss of faith in politicians and democracy could make 2012 the most frightening year in living memory

The dawn of a new year is usually a time of hope and ambition, of dreams for the future and thoughts of a better life. But it is a long time since many of us looked forward to the new year with such anxiety, even dread.

Eliza Blue said...

@Alpha Beta Soup

Glad you enjoyed the article. A couple of years ago, I went on a tour of organic gardens in Seattle. It's amazing what people are able to accomplish in tiny backyards...productive gardens, chickens/geese, honeybees.

g-minor said...

I believe this new year's eve warrants liberal consumption of champagne. And here's a toast to bring in the New Year...

"History repeats itself, first as tragedy, second as farce." -Marx

Let us hope that we are indeed entering upon the farcical iteration of the last tragedy. I'm inclined to believe, however, that the current big mess is the last days of the farcical iteration of the previous tragedy and that we are about to enter upon a brand new, unprecedented and entirely fresh tragedy.

Happy New Year to all and warmest thanks to I&S for this splendid enterprise!


The Anonymous said...

El G...The tricks of the bankers are time wise in an inverse exponential death spiral. The time of Prechter's predictions may soon be nigh.

The one thing I would love for someone to ask Prechter -- you've called for an imminent move down to DJIA 1k about 85 times, and thus far, you are 0 for 85 in the prediction department...

You are now making prediction what, if anything have you done to make this prediction any more accurate than the last? Of course, that would be the last time he would agree to appear on that network.

Interesting tidbit. While he is more known as being a bear for the last quarter century, Prechter has made 2 bullish calls during that timeperiod...1987 after the crash, and early 2009 (similar to stoneleigh) where he called for a "short and scary" countertrend move as it was clear how pervasively negative herd sentiment was at the time. Now while he significantly underestimated the extent of both the bull markets, he is 2-0 in calling those bottoms. If he ever goes bullish again in his lifetime, it will be interesting to see.

The Anonymous said...

"ex VRWC said...

In 2008/9 collapse I heard a lot of talk about letters of credit being curtailed which would lead to a collapse in trade flows. I believe some of this occurred, but I think that the unlimited liquidity backstops put in place eased it all over time. However this time there is nowhere near the amount of chatter about a credit freeze than there was then."

Thusfar, that is correct - the chatter is nowhere near the same:

While this is more of a "bank to bank" level of trust indicator, the TED spread, while rising, is still nowhere near the levels that preceded the crash (see the 5 year to see how bad it truly peaked at 450+).

Currently, we are at 57 and rising. If it gets up to 100 its clearly time to pay attention, and if it gets up to 200, run.

As you guys are talking about LOCs, you can check the A2P2 spread as a pretty good approximation of the level of trust or distrust in the system.

el gallinazo said...

Joe in NC said...

El G,

I think the Iranians may not want the action to be affiliated in any way to to their navy. Maybe a really unexpected supremely "rogue" attack and after the bodies are ID'd, the finger of blame finds a new home.

Of the 17 fanatic, ethanol guzzling and coke snorting Arabs who purportedly dropped the three towers and severely damaged the Pentagon with their boxcutters, most were of Saudi origin and none were nationals of Iraq or Afghanistan. Yet this resulted in a decade long invasion of these two countries while leaving the desert kingdom unscathed. Additionally, having the commander of the Iranian navy announce this tactic to the international press doesn't exactly aid in obscuring the origin of potential commando raids on the Gulf oil infrastructure. I also got the impression from previous comments, that these commandos would be composed of Shia nationals of the countries where the raids would take place.

@The Anonymous - Re Prechter

Well, I made it quite clear in my comment that his timing sucked in general. In my opinion, the reason for this is that he totally underestimated the effect of the Greenspan and Bernanke "put." He tends to hold the central banks in contempt as pitiful giants. (I hold them in contempt also, but for moral reasons). But I think that the fundamental dynamics of his ideas are sound, though he is far better known for his technical than his fundamental analysis, and I think it will happen eventually. It appears that 2.5 years after the "crisis," the central banks are, in fact, becoming increasingly ineffective at control, things appear to be spinning out of control, and Prechter's extreme predictions may yet come to pass over the next four years. As Yates wrote:

Turning and turning in the widening gyre. The falcon cannot hear the falconer; Things fall apart; the centre cannot hold; Mere anarchy is loosed upon the world,

Time will tell, but I regard it as likely.


There is a movement in Montana called The Oathkeepers. Membership is restricted to active and retired military and and police who were required to take an oath prior to their service to uphold the Constitution. They are currently organizing a recall of the two Montana senators and one House rep, who all voted for the NDAA on the basis of treason. The leader is a young, former paratrooper, who upon leaving the military, went to Yale Law. He is very clear and no dummy. You can hear him interviewed for an hour on Charlie McGrath's December 29 Internet radio show. There is an annoying six minute commercial in the middle, so I recommend that you download from the right hand link so you can scroll past it.

Ash said...

The Anonymous,

What the banking system had in 07-08 was a solvency crisis, which manifested itself as "chatter" of imminent doom through liquidity channels. This forced central banks to step in with full force after the fact. What we have now is the same solvency crisis (or should we say "accounting" crisis) magnified many times over. There are clearly warning signs all over the place, ranging from metrics of USD and EUR funding stresses in Europe to "contingency" plans (not very contingent) and other statements/actions from public officials and "smart money" investors.

The real difference now is that the central banks have been exposed as the pathetic creatures they really are. They slash interest rates and create temporary funding facilities before the fact, trying to front-run the symptomatic liquidity concerns while the solvency disease continues to stalk corporations, banks and entire countries with ever-greater force. They have only managed to obscure warning signals in official liquidity channels by reacting so quickly with the only thing they are capable of doing.

IMO, it is a big mistake to take solace in the fact that the numbers aren't as bad as they were a few years ago. My guess is they will never get that bad before we hear mainstream chatter about cascading bank failures across Europe, and the rest will be history, as they say.

scandia said...

@FB, I enjoyed Raclette on X-mas Eve. Fantastic meal served not with tea but a light bodied red. Actually my preference is a beer.

The Anonymous said...

"IMO, it is a big mistake to take solace in the fact that the numbers aren't as bad as they were a few years ago. My guess is they will never get that bad before we hear mainstream chatter about cascading bank failures across Europe, and the rest will be history, as they say."

If thats the case, its a shame as we would then be deprived of another potential early warning system, and also, possibly set ourselves up for being on "red alert" for the rest of our lives.

Too often I have seen people reject an indicator when it doesnt support the narrative they want to believe -- only to later decide it is "working again" once it is going their way. As the housing bubble peaked, I have seen people declare median prices, sales, case shiller, etc as "flawed" in 05 when they didnt show declines, "proof" of declines when they did from 06-09, "skewed" when they didnt show declines during the 10 bounce, and now "reliable" as they are once again showing declines.

Please dont interpret the tone of this as it can easily be interpreted as being inflamatory or directed specifically at you. I have seen ZERO evidence of you doing this. Im just pointing out that taking this stance can be the start of a slippery slope that I am not yet willing to descend.

In my mind, these are the same imperfect indicators they always were. None of them are dispositive, but they are just as helpful as they always were.

Again, dont get me wrong. I have been completely out of the market for 6 months now. I am much more concerned about the state of affairs now than I was in the first half of the year. Still, as long as we have had so many false positives that something is "imminent" its good to be skeptical, or at least point out the differences between now and 08-09.

OK - im out for 2011. I hope everyone has a happy and safe new year.

Gravity said...

Best wishes to all and an equitable and survivable 2012. Its 20:30 here and the fireworks bangs are giving me shellshock, ill go and eat some wretched oliebollen, occasionally you find a tasty one, but not often.

Jerry McManus said...

From the mind of Mark Fiore: ContagionEx

Ash said...

The Anon,

I can understand how it sometimes appears that the people on "red alert" cherry pick official data to fit their narrative, but that's not what's happening here at all. Perhaps ZH is an even better example, since they go over every piece of economic news/data on a daily basis. I've heard a lot of people, including a good friend who works in finance, criticize them for ignoring all the good data or putting a negative "spin" on it. From where I sit, that's simply not true.

The data is observed and analyzed in the context of all other pieces of data, news and a broader theoretical perspective, as well as a bit of common sense. There will always be outliers and manipulation, and sometimes you may have even a legitimate "improvement" in some metrics. These things must be factored in and constantly re-evaluated in the context of a broader perspective, which is what we all try to do to the best of our ability.

"If thats the case, its a shame as we would then be deprived of another potential early warning system, and also, possibly set ourselves up for being on "red alert" for the rest of our lives."

You made the point that things aren't so dire for the banking system based on the fact that the TED spread is still not very close to its high in 2008, and that we should only start "paying attention" when it passes 100. I explained why I thought that was a faulty approach - i.e. the central authorities have created large distortions in officially published liquidity metrics, since they have been conditioned to implement short-term monetary policy that masks those pressures even as they reach a boiling point, unlike in 2008.

Like a tea kettle without the pressure release whistle! The water will boil even if we don't know it, and even if we gradually turn down the heat, because we simply can't turn it off. Yes, it is a shame that these relative market signals do not function well as an early warning detection system, especially in the era of unprecedented central intervention, but that is the reality of our system and our situation now.

Nassim said...


I think these should help:

Nuclear Electromagnetic Pulse

Non-nuclear Electromagnetic Pulse Generation

Getting Prepared for an Electromagnetic Pulse Attack or Severe Solar Storm

Ka said...

Ash, Anonymous,

Not that I know how to read technicals and such-like anyway, but I can't imagine any of them can be useful in this case. I assume that TPTB are aware that this is, so to speak, the Final Ponzi, in that whereas in the past one could assume that after a bust the secondary and tertiary economies would eventually get back on their feet, since the primary economy was still there. But this time it isn't, at least for rebuilding an industrial secondary. Hence all the can-kicking. What it means for the rest of us, is that it's just a crapshoot. We should be on red alert at all times, as we are already on borrowed time.

Hombre said...

I hope 2012 brings us all to a deeper realization that we are out of balance with the natural processes of this, our stressed planet, and that we find new and extraordinary ways to find harmony with the earth.
Be well, be happy, and be prepared.
Thanks to all the really sharp TAE posters, to Ilargi and the StoneLady!

Joe in NC said...

El  G,

I was reading the comments on the latest Jim Quinn post at ZH today and I saw your (or El G imposter?) comment about conspiracy theories (Bilderberg & Boxcutters)...true and untrue.  I think I've read here that you were "banned" ? from commenting on the 911 conspiracy theory so I am not going to ask you a direct question about this specific topic. Besides, I personally don't have an opinion on it one way or the other.  IMO there have been enough provable "federally sponsored" actions that are sickening, I don't feel compelled to put the effort into the research.  My question is about Mr. Quinn - any idea on why the commenters seem to have such contempt for him?  Personally, I like reading his posts.


Frank said...


I cannot agree with you about ZH and honest reporting.

My favorite example is American Eagle coins. Besides the bullion coins, which the mint is directed to produce as many as they can sell, the mint also produces a line of brilliant uncirculated numismatic collectors coins at a substantial markup from bullion value.

Obviously to anyone but Tyler, these collectors editions must be produced in limited volume in order to get the premium.

About 10 months ago the mint put out a notice that there would be one production run of collectors golden eagles for 2011. Any ordered in the next 60 days would be delivered, after that, no more till 2012.

Tyler reposted that press release under a scare headline implying that the deal applied to bullion gold eagles. He did it, he deliberately deceived in order to get eyeballs.

He played this specific game with collectors vs bullion eagles multiple times in 2010 as well as that once in 2011. It severely damaged his credibility with me.

He's done other cherry picking and deceiving headline stories that I didn't like, but this one is a smoking gun, and easily explainable.

Ash said...


I remember that. My only explanation is that physical gold is like love for hardcore libertarian, Austrian-minded analysts... makes you do crazy things. Seriously, though, I too have had issues with TD's "intellectual honesty" when it comes to the HI/gold issue, and I don't think it's just because I disagree with him. There's really no excuse for that if it is done intentionally and repeatedly. I'm not quite sure the extent of either with TD. Do you say it's a "smoking gun" because he did it multiple times and it was so obvious?

At the same time, I believe accusations against him for cherry picking economic/financial data or reporting with misleading "sensationalism" are way too overblown. For the most part, he seems to be accurate with his reporting and does his readers an extraordinary service. Again, I have real issues with his strategy, tone and implications when it comes to his hardcore "libertarian" views (I have similar issues with Mish and KD). However, I responding to The Anon about the issue of using negative data to "prove" that the financial markets and economy are in really bad shape while writing off the positive data, which is somewhat different (it's more of a cognitive bias issue).

el gallinazo said...

Joe in NC

I wasn't banned. It was just requested to me on various occasions and in strong terms to cease and desist.

I do comment occasionally on ZH with the same name and icon. I am a big fan of Jim Quinn and I thought the article in question was superlative. As to the comments. This DavidPierre is a strange loose cannon and got things off to a boisterous start. His first comment got a huge thumbs down. A latter comment got a huge thumbs up. I must assume that the comments posted under Jim Quinn with this post were from an impersonator. Either that or he is suffering from multiple personality disorder and his evil internal twin took over. I am going to look into it further.

Joe in NC said...

El G - a poster imposter makes a lot of sense...I can be pretty naive when it comes to interweb stuff.


el gallinazo said...

Regarding bullion and collector gold coins from the US mint. I can only think of three reasons to buy the collector coins:

1) They give the buyer a thrill of some sort
2) They think they will increase in value by a greater percentage than a regular gold Eagle.
3) They think that the govmint will exclude them from confiscation again.

I can't comment about (1). Everybody has got to seek thrills in their own way. As to (2), I think the days of PBS's Antique Road Show, where you discover that your attic trash is worth thousands to a collector, are rapidly coming to an end. As to (3), this time I think it will be no holds barred. They may even go after silver.

trojanhorse said...

El G and Joe in NC is this the Jim Quinn you speak of? The very one with the political mentor Rush Limbaugh. ?

You have pigued my curiosity on this, which is as bad an item for me, or even possibly worse, then the oft chronicled horrendous unscratchable itch.

Joe in NC said...

El G,

So if you have not been "banned", can you verify for me which side of the fence you are on (re: 911 conspiracy theory)? My guess is is a thumbs down (untrue). Again, I have not researched this subject matter and have previously stated why. I would be interested in knowing how this preceded a sort of "cease and desist" thing. I can probably look it up in the archives if I really want to know I guess.


Ilargi said...

To y'all

Please have a great 012 from Nicole Stoneleigh, Ashvin and I. And VK, El Geier, and all the rest too, at TAE.

Personally, I got to say, and I ain't ashamed to admit it, I'm jittery about this one. There's no telling no more where it'll all go. My hope is more people will grab a hold of their own lives, but my fear is they will not. Not in time. And if they don't grab it for themselves, like tomorrow morning, someone else will grab it for them.

I think it was always set to be a decisive one, this year, even without the Mayans. We'll continue to do what we can to show you why that is, and how best to float your boats on that tempestuous river of time.

TAE is set to soon grow into something quite a bit bigger than it's been thus far, won't be long now.

Me, I always worry that it should have happened a year ago or so; but at some point that inevitably turns into the wrong worry: the only one that counts is the one that is yet to come.

We are far more humbly grateful for all of your attention, and certainly your donations, than you're ever likely to know.

For Nicole and I, this has never been about us. Or even you, for that matter. It's about your children. It always has been. They're the ones that need help.


el gallinazo said...

Joe in NC

As long as we don't get into a discussion, I'll give you my position. After untold hours of study of the details, particularly the ones involving physical science, I would bet the farm and my first born (and only) son that it was an inside job choreographed by Cheney and Rumsfeld but demanded by consortium of bigger fish.


Jim Quinn and Rush Limbaugh - say it ain't so, Joe! I thought that fat phuck had died from a combo hotshot of Oxycontin and Viagra. No mention of contributing to The Burning Platform in your link to Wikipedia. When push comes to shove, Limbaugh is just a nasty ultra neocon of the Kochsucker school, only more blatantly and publicly racist. The writer of the articles named Jim Quinn appears to be anything but. Why don't you read the article, and let us know what you think? BTW, I left a comment on The Burning Platform asking if the comments under his article were from an inposter. If they are being written by your proposed Jim Quinn, this will require some serious contemplation on my part.

Joe in NC said...


I don't see the Jim Quinn I've been reading as being "aligned" with Rush. Just take at look at the link El G provided.


Glennjeff said...


Those two links go to the same article (Part 1) for me.


I've started work on a pilot episode, "Growing Tomatoes in Pots" for the purpose of quality assesment.


Whilst the calendar is a purely arbitrary and meaningless construct, apart from its function as a subset of the prison in which we are all caged..........

Best Wishes and Best of Luck to all for this "New Year 2012"

trojanhorse said...

el gallinazo ,
The only Quinn I would propose is this one (note: if it gibbles, then just let it load)

That proposal and wishes for the best in the New Year ... to friends and as well to those also might consider me an enemy.

Nassim said...

Those two links go to the same article (Part 1) for me.


Strange. I just checked all three links and they each go to the correct page. The last link is on two lines that is all.

NZSanctuary said...

Joe in NC

This talk by Richard Gage (3-hours long) lays out a good foundation of evidence against the official conspiracy theory around 911. Take it or leave it, but this is probably the most consistent alternative message - and includes chemical analysis of dust from the destroyed buildings.

Brunswickian said...

Looks like a tipping point.

Dec. 30 (Bloomberg) -- Home prices in Australia’s eight capital cities slid 3.7 percent in the first 11 months of 2011, extending the biggest drop in at least 12 years

Nassim said...

Dec. 30 (Bloomberg) -- Home prices in Australia’s eight capital cities slid 3.7 percent in the first 11 months of 2011, extending the biggest drop in at least 12 years


That was how Bloomberg presented it and this:

Home values rise for first time in 2011

is how the local paper presented it.

Glennjeff said...


Satyajit Das links, sorry, you have been busy.

I always thought Australia was a puppett state of the USA. That was scary enough, but China -> double plus ungood.

Glennjeff said...


Local Oz newspapers have been known to express parochial cheerleading bias on the odd occasion.

The last two paragraphs of that article warrant carefull interpretation.

Nassim said...


Sorry. Here goes:

China top secrets part two: Envoy briefs His Excellency on 'two-track' economy

I don't think the Chinese are greedy, they would be quite satisfied with WA.

Nassim said...

For those who live in dark northern climes (e.g. scandia), these photos - all taken 01/01/2012 - may cheer you up (forget about the first 2 of that giant dead flying fox).

20km from Melbourne CBD

Kate said...

Progressive populist/Ash, I host through the WWOOF program, even though my property is a sub-acre homestead rather than a proper farm. Our experience has been mostly very positive with the volunteers who show up; about as many superstars as duds (ie, very few of each), with most volunteers are squarely in the middle.

It's interesting to see the range of people who show up, and the reasons they show up. Often it's college students looking for cheap ways to not go home to their parents during breaks. A few actually want to have homesteads of their own. And we've had the occasional older adult using it as a hostel alternative. For me it's always a double opportunity to get a lot of work done and get some proselytizing in, purely as subtext. Thus far it would have been very difficult for me to run a homestead singlehandedly without this extra labor. My husband will be out of a job this year though, so labor will not be in such short supply. Always look on the bright side, right?

Frank said...

Board, best wishes to all in the coming year.

Ash, as you say about the numismatic eagles issue, it's blatant and repeated and Tyler himself, not a guest or contributor. There's no question of selection bias, it's 100%.

Glennjeff, I can't agree that the solar calendar is arbitrary. Any temperate or boreal hunter-gatherer or farmer watches the sun very carefully. The solstices, the equinoxes, even the cross-quarter days are big deals.

Ilargi, I dunno anymore. It just keeps looking more and more like fourth century Rome. Things could drag on for another 10 years. Which would really suck for me. picking up pieces at 55 is a lot easier than at 65.

Ash said...


I for one am positive the next 10 years will not be anything like the last 10 for the vast majority of people, or even the next 2 like the last 2. Even Merkel says this year will be "more difficult" than last year:

Eurozone debt crisis: leaders warn of dangers facing economy in 2012

"The path to overcoming this won´t be without setbacks but at the end of this path Europe will emerge stronger from the crisis than before," Merkel said in a New Year´s television speech yesterday. She also said 2012 "will no doubt be more difficult than 2011".

Wasn't Europe in a state of constant panic for a good part of 2011, leading Merkozy & Co. to stake their reputations on "solving" the crisis once and for all, on several different occasions, and to the forced overthrow of several democratically elected leaders? Seems like such a long time ago!

And in very related news, N. Korea has straight up declared an era of prosperity for its people.

el gallinazo said...

Please let's not get into a 9/11 discussion on this blog or I am going to get a spanking from the big, bad, Dutch bear. A good place to take your interest and comments, if any, is Architects and Engineers for 9/11 Truth.

Max Keiser interviews Karl Denniger. Except for a very brief foray into USA politics, Karl right now sounds just like I&S vis-a-vis his predictions of deflationary collapse. He even said a 90% drop to the bottom in real estate pricing off the peak is not unthinkable.

Also, I second the recommendation to Golem XIV last post. Informative and snarkily entertaining in his ridicule of bankers secret habits.

Frank said...

In the fourth quarter of '07 it was obvious to the most casual observer that bad things were about to happen. I agree we won't be going back to '01-06.

I am however somewhat skeptical about the US really getting clobbered this year. It looks more to me like it's the turn of 'core Europe' and what the Brits used to call 'The Dominions'.

Ash said...


I'm assuming you're talking about US asset prices when you say "clobbered". Even if we don't get a full blown banking crisis over here, and/or mass bailout extortion, the Euro situation will certainly make sure all leveraged markets remain under severe pressure. It's all relative, too. Another flat year in the equity markets would be considered a "clobbering" for many money managers and pensioners (and perhaps any retail investors that are foolish enough to still be in). Certainly wouldn't be surprised to see at least a 10-20% decline, though, in some of the more optimistic scenarios. And then of course there's real estate prices, which will affect many more people.

el gallinazo said...

I have recently been converted to Mayan astrology. I try to be skeptical, but I just don't see a way that the USA, not to mention the world, can get through 2012 with business as usual. As there is no way that the governments and banks in Europe can collapse without dragging down the USA and Japan with them. The global finance mafia is just too interconnected.

Price assignment to assets is based on Ponzi financing. The recent release of the hyperhypothecation data indicates that it is even worse than uber bears thought a year ago. The more I think about, the more obvious it is becoming to me that 2012 is the year of Prechter's predictions - though Prechter never writes about the social and human consequences of these predictions. Just save your capital as cash and buy stuff for pennies on the dollar after the apocalypse at a global garage sale.

Denninger said the same thing about gold in his interview with Max that Prechter did with Frisby, though Karl didn't give an eye popping number. But he said that the price of silver and gold was based on leverage, and when the leverage is gone, the price will drop drastically.

I remember a lot of Woody Guthrie songs which talked about people going hungry while FDR ordered crops dumped in creosote to bolster the price of food. So far the bankstas and their puppets are concerned with the price of real estate - not food. Putting the houses in creosote won't help the banks much because the keys are arriving in the mail.

Woody was a boyhood hero of Bob Dylan, though Dylan later developed according to his own genius and his own times. Dylan at 70. A new songster must emerge shortly from the crowd who will reflect back to the people these times.

Jim R said...

El G,
I'm thinking you are correct about the global garage sale.

The *real* problems come after that. When folks have this 52" flat TV on the wall, but nothing to watch. No, nevermind, that's right now.

When there are cars but no fuel. Stores with empty shelves. It's gonna be kinda sketchy until the militias run out of ammo.

jj said...

The alleged gold bubble--


Leveraged to what-i wonder-

Frank said...

Ash, it's all relative.

If US real estate takes another 5% hit, while 'the dominions' and Ilargi's home place take a 20% hit that's real.

Stihl and Husqvarna are basically tied for making the best chainsaws in the world. (Something that matters in rural New Hampshire.)

Stihl has a better dealer network, which is worth money if you're looking at frozen plumbing and a bitching wife. However, Deutschland AG has pushed that advantage to the limit. Angela Merkel has about 1% more margin before I and my yankee neighbors cut her off and buy from Sweden, New Zealand, Canada and oh yes, the States.

If/when that happens, we hill yankees plant a slightly bigger garden, and give up an evening a month at the VFW. Germany's 'export unemployment' economy will take a far worse hit.

el gallinazo said...

Joe from NC and Scrofulous

My inquiries have revealed that Jim Quinn, the author of the two Burning Platform articles, re-posted on Zero Hedge, is the same Limbaugh affiliated ultra rightwingnut that Scrofulus suggested. Yet these two articles where excellent analyses of the recent US economy. Go figure! The style of his formal writing and his informal comments are amazingly different. A lesson in the human attribute of cognitive dissonance.


I don't know about chain saws, but I had a Husqvarna light model weed whacker in the USVI, and it sucked. Almost impossible to start. Replaced the carburetor twice and it still sucked. Very disappointed. They are not cheap. Everyone I talked to thought the Stihl's were great - but too late.


Neither Karl nor Prechter said that gold was in a bubble. They said that everything on the planet that you could set a price on was in a bubble (thanks to the banking cartel). Prechter even said that "gold is the only real money" which should appeal to you.

Frank said...

el G I have a Stihl weedwacker, bought back when 1 euro == 1 buck, because I like my chainsaw. It won't start either.

I think there is a limit to just how light a gasoline engine can be and still actually work. My weedwacker needs about 8 more ounces on the flywheel. The reasons for skimping are obvious.

Joe in NC said...

El G & Scrofulous,

Re Quinn:

Well, I wasn't expecting that. I guess 2012 is not getting off to the best start. As Cartman from South Park would say - son of a bitch! Glad I only read his stuff regarding the economy or peak oil...but I do think I remember him writing something that was a big endorsement for Ron Paul...that I passed on.


el gallinazo said...


I got so frustrated with my Husqvarna whacker that my last few months I started to borrow my friends Ryobi. Of course the Ryobi brand is considered the equivalent of the Bic disposable lighter, though much better quality than the Chinese brands such as Chicago. It always started on the first pull and did a nice job of cutting :-)

Actually I bought a Ryobi battery tool combo kit because of the inexpensive price. I really bought it for the circular saw for occasional use on my little sailboat at mooring, but it had a great flashlight powered off the tool battery which lasted forever, and the other tools were good backup to my basically Milwaukee kennel which I didn't wish to risk around salt water. However, the champ was my DeWalt 1 3/4" rotory hammer drill which I won for peanuts in new condition from a Detroit pawnbroker on an eBay auction. This sucker would drill a 1.5 inch hole through 6 inches of high quality concrete in seconds. Perhaps that put me in the same position as JPMC, in possession of stolen goods. The difference, I guess is that JPMC engineered the theft via MothaF Global.

jj said...

Neither Karl nor Prechter said that gold was in a bubble. They said that everything on the planet that you could set a price on was in a bubble (thanks to the banking cartel). Prechter even said that "gold is the only real money" which should appeal to you.


Last i heard-gold does not do anything-it just sits there like it always has and the only thing that does move is the amount of paper that is so called the "gold price"-

The best way to look at it-is through currency exchange rates-the same way you look at for eg: the EUR/USD cross

So how can anyone say it's leveraged and what is it leveraged too?

Gold is simply another currency and it floats and competes like all other currencies-

We do not make medium of exchange purchases in gold-but it still has all the characteristics of a currency and it certainly continues to live up to a currencies role as a "store of value" and functions extremely well in that sense-

So-are any other currencies levered?

Yes-they all are-but the leverage is backwards in favor of debt-
Governments/Central Banks are trying to reduce that negative gearing by printing paper currency to delever the mountains of toxic debt-
Gold stands apart from other currencies in that sense -simply because it cannot be printed-

Jim R said...


Gold is leveraged ever since the invention of fractional reserve banking ~1000 years ago. Now it's probably more than 1000 to 1.

Leverage makes the world go round.

.. until it doesn't ..

Ash said...

FOFOA's latest (and uncharacteristically short) post addresses the issue of "early warning detection" that was brought up here. He is mainly referring to a collapse in the paper gold ponzi, of course, but it applies just as well to everything else.

Happy New Year! (2012:
Year of the Surprise)

"We are all looking for "information leakage" as to the criticality of the systemic pressure we just know must be building. We look to the contango, the curve, the spread, stock and flow to leak us a hint about what kind of scramble might be happening on the other side of the curtain. But when I look back on other big Ponzi-like collapses, there never was much if any "leakage" before the event.

I think there are a couple of reasons why this is the case. In the last days before a Ponzi-like collapse, redemptions, conversions and exchanges are usually settled in an outwardly normal fashion. In fact, it is often those closest to the collapsing structure, like clients and counterparties, who are most in denial in the final days because they are directly privy to the superficial normalcy of transactions taking place.

It is at the precise point that the immediacy of collapse becomes unequivocally apparent to the inside operator that the plug is pulled and the music stopped. Operators pull the plug on redemptions all at once in order to either make off with the remaining assets, distribute them to favored associates, or in some cases, to preserve as large a pool of assets as possible. So any true "leakage" would have to be something of which the operator himself wasn't aware.

That first reason why collapses happen by surprise relates to the uncontrolled or unplanned collapse of a Ponzi-like structure. The second reason covers planned and controlled collapses. Planned or controlled collapses also happen by surprise, because that's how you get the maximum "bang for your buck" so to speak."

jj said...

Gold is leveraged ever since the invention of fractional reserve banking ~1000 years ago. Now it's probably more than 1000 to 1.

That's assbackwards-

Credit and the collateral against it is leveraged to the available currency or gold-not the other way around-meaning the paper currency or gold is in short supply- relative to (the X to "one")
Which increases the demand and value of either one-

If GLD for eg. does not have the gold to cover-it means physical gold is in short supply-no?

Jack said...

People are desperate for money and they will sell whatever they have to raise capital.
Remember that the storm hasn't hit us yet.
This goes for big institutions and the average people.
This is a simpler way of putting things in perspective.

Joe in NC said...

Re: weedwhackers

I purchased an Echo this summer and have been pleased. It's lightweight (10-11lbs) and pretty powerful (depends on the application I guess). Starts very easily once you learn the "ritual". Downside is it requires manual insertion of pre-cut string. Not a problem if you use .155 string.


jj said...


People are desperate for money and they will sell whatever they have to raise capital.
Remember that the storm hasn't hit us yet.
This goes for big institutions and the average people.
This is a simpler way of putting things in perspective.


I understand that-

But-if the average person or hedge fund doesn't have "something" to sell-tell me-
How can they sell "something"?

I shouldn't even have to link a chart-
Simply look around on this-or any other economic blog and point out how many actually hold gold-or even have a clue what it is-

The "public" at large have never participated in the gold market and i don't expect they ever will-

In case you forgot-the vast majority of the worlds population invested in real-estate-

Glennjeff said...


Thanks for the clarification regarding Gregorian versus Solar calendar.

trojanhorse said...

el G

Yet these two articles where excellent analyses of the recent US economy. Go figure!

I don't have far to go to go figure there as I have never met anyone that I totally agreed with, nor for that matter, totally disagreed with. I change my nom de guerre often since I end up getting into some, often abtruse, sticking point with just about everyone and that turns out to be problematic, as far as continued dialogue. (Incidently I hate that word 'problematic' and look askance at any twerp that uses it indiscriminately where the plain word, 'problem', would serve more correctly, like just now! ... There, I have probably alienated a number of readers just on that picayune opinion:)


Joe in NC said...

"Simply look around on this-or any other economic blog and point out how many actually hold gold"

"In case you forgot-the vast majority of the worlds population invested in real-estate"

Fair enough. But I think your mention of RE diminishes your argument. Let me tell you a personal "real life" story as it relates to your (above) statements. I have friends that bought a 1.2M house on an island in South Carolina in 1996. The husband is a CPA and last I heard he makes over 250K yr. This was to be their "retirement fund" as they had not properly saved previous to 2006. The husband assured the wife it was a sure thing...just look around - RE prices are going up like crazy and we'll make 150K on the sale of our current home. Well, they did make 150K on that sale but as to the current home - they paid 1.2M and after it was all done with, they put in 1.4M into it. On Zillow it currently has a value of 770K. Do you think they are in any position to invest in gold? I'm sure the husband would like to pitch it but they have a few problems to work out before the next "great investment idea" I think.


el gallinazo said...

Joe in NC

Did they pay cash on the barrelhead for the retirement home or are they carrying a mortgage as well? Well, who can blame him. Real Estate never goes down - God only made so much!

Re weed whacker from before. As usual my memory betrayed me. The brand I borrowed from my friend in fact was an Echo and it was excellent. This friend was from northern Italy and it called it an HO :-)


The TSA is now stopping and searching people in their own passenger cars. Everything seems to be right on schedule since 2001. They call it their VIPR program. Google it - TSA VIPR. TSA Viper works just as well. I think think the name shows a bit of swagger and arrogance. Now they just want to intimidate you. No more HELPING HANDS program. Last time I found a viper in my yard, a copperhead, I took an ax to it.

Joe in NC said...

El G,

They probably made the minimum down payment (I think maybe 5% in 2006) ? They never saved - always gambled. This was not the first bad investment decision the husband ever had.


Joe in NC said...

This tidbit may actually help JJ's argument. I think the husband I've referred to in prior comments is "extreme" as an example goes:

Long before the RE boom, he had a "liquidity problem" at the same time his wife's wedding ring "disappeared". Turns out, the value of the ring instigated a police investigation and my wife was "questioned". It left a bad taste.


el gallinazo said...

Joe in NC

He sounds like just the type of CPA a bank would want to audit its books :-) I wonder if enlarged prostates count as liquidity problems?

Joe in NC said...

El G,

Agreed. On the positive side, I think GolemXIV is providing an interesting "in the trenches" view of shennagins in current banking/accounting practices?

I sure hope Golem XIV is not affiliated with Rush :-;


jj said...


Do you think they are in any position to invest in gold?


I believe i said basically that same thing-


The "public" at large have never participated in the gold market and i don't expect they ever will-

You see what the problem with buying gold or gold miners is-

People"the masses" dont see it until it starts spiking-like the run up to 1900 and then they jump in and the price drops-like recently and they panic and sell and get creamed-
Now-the price has corrected lower and sentiment in gold is at extreme bearish levels and-gold could still easily fall to 1425 or so-but i think 1550 is a bottom and I'm playing it as such (with miners)

I shorted silver when it and gold broke out of their 10 year/weekly channels and silver went parabolic and because sentiment was insanely bullish towards both-then buying exhausted itself-like always and the price started to fall dramatically-

Hedge funds of course were forced to dump because clients panicked and the price dropped-so now-hedge funds are out-people lost money and are afraid to re-buy-

When you hear people talking like they're on top of the world with any trade--sell
When you hear people puking--buy

That strategy has been in play for 10+ years with gold-
Gold is in a secular bull market and bull markets always shake out weak hands and then continues higher without them-that fact cannot be disputed-
When it ends-it will end-until then-it's still in play-

Central banks and governments are the main buyers of physical gold and it is not for inflation expectations-it is for the same reason that broke gold out of a 20 year bear market in 2001-
"Credit default risk"
None of that has eased-in fact its gotten worse-

Same exact thing that drove long bond yields down even while Greenspan raised the FFR 17 times and the long end remained inverted-
Remember the "big conundrum"?
The long bond wasn't buying the BS and neither was gold-

Joe in NC said...


Looks like we're in a loop. I thought Urban Roman addressed your latest question at 4:35 PM?


jj said...

Looks like we're in a loop. I thought Urban Roman addressed your latest question at 4:35 PM?

I don't believe i asked a question-

I answered that 4:35 post and explained that it isn't gold that's leveraged-

Traders can be leveraged long and short to gold-it doesn't matter-one side is right and the other is wrong-
Give it some time and we'll see which side wins-

jj said...

btw-in reference to that 4:35 post-all roman left was a long winded link by a random ZH poster-which i had read previously about what would happen to gold in a total collapse-he makes a series of errors in his assumptions/musings and as usual-hyper-inflation is always the reason-not a deflationary collapse-ever-

"I see and hear a great deal of cognitive dissonance among those who promote Gold as the way to salvation, all while ignoring or dismissing the idea of governmental confiscation of said Golden chariots. It’s not like doing so would be totally unprecedented in the US (or on other plantations for that matter) since President Franklin Roosevelt’s April 5, 1933 Executive Order 6102 did precisely that, promptly followed by a revaluation of said confiscated Gold to push the anal probe that much further up the rear."


This is typical of people who have not given serious study to gold and history ie: Karl Denninger

There was only "one" reason FDR confiscated gold and that was because he knew that through gold in the peoples hands (not like now)
they could and would start bank runs through redeem ability via the quasi gold standard of that time and that would have brought the banking system to its knees which should have happened and if it did-we wouldn't be in this bind we're in today-

Today-there is no danger of bank runs via gold and as i've pointed out here with data-many times-there is no amount of gold in private hands worth going after-
Sure they could make it illegal and declare marshal law-but never forget-the market awaits underground and everywhere for those who wish to be its friend-
It is your friend too-you simply need to listen to what it's trying to tell you-

Greenwood said...

James Kunstler was interviewing John M Greer and really opened up a can of whoop-ass on
Techno Triumphalism. The sheep keep thinking technology can do the impossible and always rescue them from their bottomless well of stupidity and myopia and are so mesmerized and willfully ignorant about the actual diminishing returns of late phase twilight empire technology.

James Kunstler's new book (coming out later this year) debunking what he like to refer to as Techno Grandiosity & Techno Narcissism:

Too Much Magic: Wishful Thinking, Technology and the Fate of the Nation

The discussion got around to Techno Grandiosity miracle 'solutions' to no more cheap energy and JMG forecasts the Descent of Fossil Fuel Man as a stair step decline:

'it will be like Winnie the Pooh being dragged down a very long set of stairs on his head':

bumpily, bumpily, bumpily, bumpily…"are we there yet Christopher?"….bumpily, bumpily, bumpily, bumpily, bumpily

crisis - damage control - uneasy temporary 'stability'- new crisis - damage control - uneasy temporary 'stability'; rinse and repeat many many times…….until you hit bottom.

Some actual zen like Pooh quotes for the 99% to ring in 2012, to inspire and as a call to action in chaotic times (Winnie must have been channeling Yogi Berra at the time) :

"Don't underestimate the value of Doing Nothing, of just going along, listening to all the things you can't hear, and not bothering."

"Did you ever stop to think, and forget to start again?"

"I used to believe in forever . . . but forever was too good to be true."

"They're funny things, Accidents. You never have them till you're having them."

"Always watch where you are going. Otherwise, you may step on a piece of the Forest that was left out by mistake."


SecularAnimist said...

Real "economic" principles

AMY GOODMAN: And if you’re teaching young economists, the principles you would teach them, what they’d be?

MANFRED MAX-NEEF: The principles, you know, of an economics which should be are based in five postulates and one fundamental value principle.

One, the economy is to serve the people and not the people to serve the economy.

Two, development is about people and not about objects.

Three, growth is not the same as development, and development does not necessarily require growth.

Four, no economy is possible in the absence of ecosystem services.

Five, the economy is a subsystem of a larger finite system, the biosphere, hence permanent growth is impossible.

I don't believe the gold standard addresses any of the problems with neoclassical economic false assumptions and blindness.

SecularAnimist said...

The discussion got around to Techno Grandiosity miracle 'solutions' to no more cheap energy and JMG forecasts the Descent of Fossil Fuel Man as a stair step decline:

It's a dead debate, really. It really boils down to people's irrational belief in money magic - that market dynamics though competition(the driver of all progress) produce "solutions" to social problems. It's not really about technology per se.

The last thing we should want is to maintain industrial capitalism's suicidal march with a new form of cheap energy. That would be a disaster.

jj said...

I don't believe the gold standard addresses any of the problems with neoclassical economic false assumptions and blindness.

I don't believe anyone that actually knows what gold standard is-believes it addresses any of those problems either-

It's "simply" a standard of money-

It wont do you one damn bit of good if there's nothing to purchase or no economy which to sell your goods and labor into or get paid a wage from and neither will the dollar or the euro or anything else-

So why would you try and relate to it?

pasttense said...

Jimmyjames: there's always an economy--even during the most brutal wars, or something like Stalin's purge of millions of his fellow Russians.

Nassim said...

Please excuse me if I am a little incoherent. The wonderful, and cheap, iced white wine plus the ambient indoor temperature of 40C (104F) have made me quite reckless.

This on-going discussion about the merits, or otherwise, of gold have pushed me over the edge.

Kastner negotiated with Adolf Eichmann, a senior SS officer, to allow 1,685 Jews to leave instead for Switzerland on what became known as the Kastner train, in exchange for money, gold, and diamonds.

Rudolph Kastener

Need I bring up the matter of what happened to those who did not have "money, gold, and diamonds"?

Alexander Ac said...

Ok, here is my PF 2012,

I tried to be as much realistic as possible,



Ash said...


What JMG is referring to, though, is "techno triumphalism" under any global economic system. If capitalism goes down with the global financial system tomorrow, there is still very little chance that the global industrial system can maintain or re-emerge anytime soon given the imminent reality of peak oil and the lack of alternative net energy flows (and the fact that economic collapse will only make it "worse" down the road). In that sense, our current predicament has effectively become over-complexity of human civilization, and technological "solutions" simply cannot change that within the confines of any economic system.

Ash said...

Speaking of JMG, I highly recommend his latest posts.

He has started to include a short description of failed prophecies from the past under his weekly post over the course of 2012 (for obvious reasons), and #2 was a doozie.

End of the World of the Week #2

"Say what you will about the paired prophetic hysterias surrounding 2012 and the Rapture, not even their most extreme forms get quite as dotty as the apocalyptic beliefs retailed in the early 19th century by French philosopher Charles Fourier. One of those people for whom the word "crackpot" might as well have been invented, Fourier spent his working life as a traveling salesman and his off hours elaborating the Harmonial Philosophy, a dizzyingly complex theory of everything that included a set of colorful predictions about the impending total transformation of the Earth and everything on it.

There were many other thinkers in Fourier’s time who were convinced that their ideas marked a vast turning point in the history of the world. Nobody else, as far as I know, took it to the extent of thinking that the general acceptance of his philosophy would turn the oceans into lemonade. That was just one of the great transformations that, according to Fourier, would happen once a significant minority of the Earth’s human population embraced the Harmonial Philosophy and ushered in the era of Harmony, the fulfillment of Earth’s history. Torrents of "cosmic citric acid," he claimed, would then descend from heaven to turn the seas tart and tasty. Meanwhile four additional moons that ran away from Earth orbit—they were embarrassed to be seen with a planet whose inhabitants hadn’t accepted Fourier’s ideas—would come swinging gaily back to their places; lions would turn into cuddlesome, vegetarian antilions; and human beings, freed from drudgery by Fourier’s discovery that economic problems could be solved by "passional attraction," would devote their time to gourmet dining and orgiastic sex.

Odd as these ideas sound today, they were hugely popular in Europe and America, and something like a hundred Harmonial communes—"Phalansteries," as they were called—were organized by enthusiasts hoping to make the dream real. Alas, neither the cosmic citric acid nor the antilions showed up, and the communes folded promptly once it became clear that passional attraction wasn’t up to the task of producing enough food, clothing, and other necessities for even the most devoted believers. At its peak in the 1820s, the movement unraveled thereafter, feeding erstwhile followers still eager for Utopia into other radical movements of the time. There was a brief attempt to revive Fourier’s ideas in the 1960s—something about his ideas, not to mention his prose style, seems to mesh well with the popular drugs of the time—but outside of that, he remains one of the forgotten ancestors of today’s Utopian beliefs."

bluebird said...

"Techno Triumphalism"

Over the holidays, I had someone tell me that with the technical advances of gadgets such as the iPad, Kindle Fire, B&N Nook, that schools will not need to buy books for the students. Each student will be provided with the latest techie gadget that will enable them to read the books online.

This was from someone who bought their 10-year old, the Kindle Fire for Christmas. Now the 5-year old and 4-year old siblings want a Kindle Fire in their Easter basket.

Kids today are mesmerized by these techie gadgets and the games that can be downloaded that they are entertained with. Unfortunately, it is impossible to explain to the parents that this "techno triumphalism" cannot be sustained.

Jack said...

Most of us know the importance of having gold in our portfolios.

If you bought the metal when it was priced lower than that is good and you should keep it if you can.

We see how vulnerable people are in times like this and a slight shift in their conditions make them or break them.

At this time in period gold looks like it will get hammered.

Ash said...


On Christmas Day, I had someone try to explain to me and a few other people why almost all work in the developed world would be conducted out of "virtual offices" from home (or wherever you are) within 50 years, given current societal/technological trends, largely eliminating the need for transportation to work and thereby reducing dependency on fossil fuels and carbon emissions. My reply was something along the lines of, "but all of that first requires a stable economy and increasing access to energy/resources, right?"). What followed isn't even worth mentioning, and I zoned out of the "discussion" shortly.

Bigelow said...

3 hour interview with Chris Hedges on C-Span, 1/1/12

Frank said...

Ash, stable economy I'll grant you. However I'm pretty sure that the telecommuting virtual office economy would be less energy intensive.

Besides all the automobile commuting that would cease, most office buildings are still wickedly energy inefficient. Futher, the office building utilities could shut down, while they could only be 'turned down' temporarily at the homes that commuters still need.

You can validly argue that not enough energy will be saved to maintain business as usual. You can argue that the economy will be so totally hosed by other causes as to make telecommuting irrelevant. But I'm pretty sure you're wrong to claim that it would require more energy rather than less.

Greenwood said...

JMG can be very amusing, both in person and in his writing.

His new book is Apocalypse Not: Everything You Know About 2012, Nostradamus and the Rapture Is Wrong

It's got some very funny parts that even hard core doomers can laugh about.

The title says it all.

It is a litany of apocalyptic lunacy.

I'm glad someone pulled it all into one big package like a crazy uncle locked in the bell tower.

The future rhymes with the past but is never identical. There are too many paths to disfunction and 'getting it wrong' to trod down the same one twice.

"Getting it Right" is a far more unique alignment of the stars. A very narrow knife edge to balance on while walking down The Road.

SecularAnimist said...

jimmyjames - Simply, I don't think wage labor is a sustainable social relation give global marco forces. The gold standard won't fix the increasing stress that relationship will face for the foreseeable future. Though, it very well could exacerbate it.


global industrial system can maintain or re-emerge anytime soon given the imminent reality of peak oil and the lack of alternative net energy flows (and the fact that economic collapse will only make it "worse" down the road). In that sense, our current predicament has effectively become over-complexity of human civilization,

Sure it can - but it depends on how you define an economy. Over-complexity refers to resource allocations. And, yes, the happy consuming economy with all its commodity fetishizations is coming to an end. Though, I highly doubt we decinde to completely stop using our industrial capacity. We just have to allocate resources in a radical new way. There is nothing more irrationally complex and wasteful than the resource flows commanded by the market economy.

Speaking of human reality impairment and technology. I was talking to this guy at a new years eve party that was laid off because of a new computer program. Anyway, he cashed out his 401K to start a trucking company.

Thievery Corporation's tribute to OWS.
Unified Tribes

Ironically Thievery Coporation makes it's living playing to the 1% at swanky DC clubs that sell $15 applitinis

Jim R said...


It isn't a debate. Buy some gold if you want.

You can simply click through the Apmex site and get a krugerrand with your credit card.

Or hang onto some cash and buy hammered gold later. The notion that anything has a sliding price scale, and that the price is magically set to a universal value by some mysterious "market" is a convenient myth.

In the end, you trade what you have (for example cash) for what someone else has. Many of us are not accustomed to haggling, but that is the way prices are really set.

Ash said...


I didn't argue that it would require more energy, only that we need to maintain or increase net energy flows to ever get to that level of complexity. Once you manage to get there, yes, it would be much less energy intensive than what we have now. But it's rather difficult (nearly impossible) to design such a large-scale and wealthy society in the midst of economic, financial and sociopolitical upheaval, which will result from declines in net credit and energy. There's also the contradiction of a decreasing need for on-site and/or human labor leading to some virtual utopia where most people have high-paying jobs as long as they're plugged into the network (which is essentially what this person was predicting).

jj said...

pasttense said...

Jimmyjames: there's always an economy--even during the most brutal wars, or something like Stalin's purge of millions of his fellow Russians.

Please don't take bit parts of a reference to some anal comment i responded to and try to make a case out of it-
Jack said

At this time in period gold looks like it will get hammered.

Ok trader Jack-show us your proof of why you would make such a statement-

Urban Roman said...


It isn't a debate. Buy some gold if you want.

You can simply click through the Apmex site and get a krugerrand with your credit card.

You're a bit late with your advice-
I've been in the gold market since 01 and am quite familiar with how to purchase gold-

btw-the returns have been 18%/year annualized for those who held-

el gallinazo said...

History has been filled with end of the world predictions. Of course none of them have come true though over the last several billions years life has seen some very hard times and was almost snuffed out on several occasions. The Permian extinction, also know as The Great Dying, which took place a little over 250 million years ago, involved the dying off of over 90% of all multicellular species on the planet. Which goes to prove that Shit Happens. And of course all right minded Christians regard The Revelations of John as a very accurate prediction of a future event. After all, it is part of the Bible.

The problem is John didn't affix particular dates to these prediction in the calendar of his times. Most scholars believe that John thought this stuff was coming down within the century he was living in. Which brings us to the Mayans. The Mayans, unlike John, did not advance the end of the world as they knew it, but rather, had a very accurate multi-century calendar, which just so happened to end in late December of the current year. Some scholars affix no more importance to this than December 31 of a calendar affixed to the wall of your local mechanic, on which are pictured scantily clad, silicone enriched women. Others, including the popular media, suggest it is the end of everything.

This whole argument gets into the question of the reality of prophesy. I believe that precognition is a reality simply because I have seen it in action in my lifetime with my own lying eyes and ears. Which is not meant to imply that every unwashed and bearded prophet on a soapbox on a corner of 42nd Street is a harbinger of coming ultimate reality. I will not bore the commentariat with my belief system in this area for more than a sentence or two, and to say that it coincides with that of physicist Thomas Campbell, which he lays out in detail in his third book of My Big TOE. But in short, it involves the conversion of the probability of events being converted into actuality by the collective and individual free will to decide of the sentient beings involved. The present of the time stream is where this conversion takes place. Prophesy or precognition takes place because the real probabilities are not always obvious through rational analysis, and some individuals are more capable of tuning into the real probability factors than others through unconscious processes. An event that rational analysis might view as highly improbable, may in fact have a rather high probability factor of actualizing.

This year will probably see the collapse of the global finance system. Stoneleigh constantly points out that Ponzi's collapse much, much faster than they expand. Because the Ponzi is the greatest in human history, the resultant depression will be the greatest in human history. The current world population of 7 billion people is keep alive by modern technology and fossil fuels. When this collapses, this population could probably be fed by enlightened forms of organic farming for quite some time in the best of all possible outcomes, but the probability of this happening seem rather small. Unfortunately, the financial destabilization of the globe could easily lead, with the current great power resource grab, to a total thermonuclear exchange, and that could easily qualify as "the end of the world." Whether the coming global financial Ponzi collapse has any correlation with the Mayan calendar will never be known. If the financial collapse does take place this year, it would seem to be quite a coincidence. And whether it will result in "the end of the world" or "just" a very nasty depression only time will tell.

SecularAnimist said...
This comment has been removed by the author.
SecularAnimist said...

And whether it will result in "the end of the world" or "just" a very nasty depression only time will tell.

Hopefully it will result in a human social system phase change where our relationships change(with the earth and each other). Which is what we should all be pushing for.

Or what Terrence Mckenna(the original prophet of 2012) describes as a civilization birthing process.

Frank said...

Ash, Perhaps my view is informed by my personal perspective. I'm a software developer.

When I first worked from home, the necessary high speed connection cost several hundred per month, and was only affordable because it was tax deductible and I billed high.

Ten years later, 85% of the country (more in the rest of the first world) can get a better connection for 10% or less of the money.

Right now, today, any software shop in the first world that still relies on people commuting in, could wack off a big chunk of overhead and have happier employees by having developers (and many other professionals) come in only two days per week, and getting rid of half the office space etc devoted to the care and feeding of those professionals.

25 years ago I used to commute between two of the Boston 'burbs. Many people still do. Pulling 10% of the cars off the road would save a couple thousand barrels a day wasted idling in traffic just for the people who still had to commute to work.

seychelles said...

Well, it remains to be seen if the big-time upcoming population reduction (an apparently verboten discussion topic) will occur via novo-Holomodor, thermonuclear human-weeny roast, industrial toxin-induced infertility, asteroid impacts etc but whatever the cause it will overall be good for life on mother erde. Maybe if any humans remain they will slowly evolve past greed is good but I am not optimistic. My new year's wish is that we all spend more time cultivating worlds of beauty and fantasy within the spirituality of our minds. It is a nice game that bypasses the money devil.

Ash said...


I agree completely. Businesses should do whatever they can to reduce energy costs and waste, and eliminating the need for office space is certainly one way of doing that (although automation and/or "virtualization" does come at a very real social cost, if not economic one, which should be factored in). Individuals should do whatever they can towards the same goal too. I'm just saying there is very little chance that it will end up being the future model for large-scale societies, regardless of how much we want it to be or what the current trends appear to be on the surface.

Glennjeff said...

el gal

Your paragraph concatonated,

"conversion actuality collective individual free will time stream precognition tuning unconscious"

Smart old buzzard.

That is what we are truly capable of, it is what we are, agents of creation, but still divine children making mud pies and dressing up dollies.

It is good that some have actually figured it out.

What shall we create today?

Ash said...


I believe this is probably the slim margin of disagreement you and I will always have (at least until industrial collapse ;-). Perhaps not really a fundamental disagreement at all. I see complexity as a function of both resource availability and the process of resource allocation, as you do. But that process requires high degrees of both stability and coordination. What cheap/plentiful energy and the capitalist market system have combined to do is create a structural framework that is very inter-dependent across large distances, and mal-adapted to periods of economic instability and international conflict.

It is that inter-dependence which is the major limiting factor for "radical change" in the global industrial system, because it cannot easily be reversed once it happens. A change in social consciousness is only one part of the equation, and will not itself decide what scale of industrial activity remains. Of course, some scale of activity will remain, and I believe old industries can perhaps find new ways of being useful to those living around them.

SecularAnimist said...

No, we are not in much disagreement at all.

Though, I have to think about it a little more. I don't think your limiting factor is really THAT limiting under a new set of rules.

Of course, we are bounded to our physical system's limits. And I agree that a change in social consciousness won't determine the scale industrial activity, though it can determine how it is used - which is the most important part.

We need to use our remaining fossil fuels wisely. Our industrial maneuverability will diminish over time. So, lets just hope El G's prediction for the collapse of the financial system this year comes true.

Jack said...

Deleverage is what we have here.
If you google that word than you can understand this better.

Ash also had a post and I liked his explanation.

Jack said...

In high school we had bullies these few people would terrorize everyone.
One day another bully from another school came to our school and beat the shit out of our bully.

Joe in NC said...


You may have already seen this, but this post has Stoneleigh's take on gold (Stoneleigh: A Golden Double-Edged Sword) and I don't think it has changed since she wrote it. I think she sums it up very well.


Skip Breakfast said...

Speed of Collapse

Yes, Ponzi's collapse much faster than they expand. But I'm trying to keepin mind that the expansion has been taking place for half a century. If it collapses over 20 years, that is still rather fast. I think we still might be surprised how slowly things unravel. At the same time, if it all tumbles down 12 months from now, I won't be shocked either. Just saying predicting that 2012 is the end of the game may be a little over-confident. There is still tremendous momentum behind the status-quo. It takes widespread fear to bring it down. Speaking to friends and family over Christmas--very well-informed, intelligent folks even--and they don't even have the slightest inkling of what could happen this year...or within the next five.

What do you have to hide?...Unobtainable-after-the-crash items, like bullets, bullet molds, primers (just try to make ten), smokeless and black powder, weapon parts, hand tools, mediciens, foodstuffs, propane, reloading equipment, matches, lighers compasses, tents, knives, sleeping bags, blankets, petroleum products, car parts (distrubtor caps), spare eyeglasses, stock firearms, candles, radios, or millions of other manufactured items.

from "How To Bury Your Goods" (c) 1981

I wonder how his food tastes now!

Ash said...


I'm only 30 min. into the Hedges interview, but it's already packed in a wealth of quality information and perspective about diverse (yet inter-related) topics such as imperialism, consumerism, finance, politics, religion, etc. Thank you very much for the posting the link.

Gravity said...

Fractal flowfields 'R us.

jj said...


You may have already seen this, but this post has Stoneleigh's take on gold (Stoneleigh: A Golden Double-Edged Sword) and I don't think it has changed since she wrote it. I think she sums it up very well.

Gold has recently seen a sharp speculative spike on fear as to the future of fiat currencies. The price shot up to over $1200/ oz, with a rise (nearly vertical recently) of over $300/oz in a matter of months. Sentiment has reached an extreme of 97% gold bulls, leaving very few additional people to drive the existing trend further. It has become almost universal received wisdom that gold can only rise in price (and the US dollar continue to fall) given current circumstances. In other words, herding behaviour has taken the trend just about as far as it can for the time being. (Of course, denominated in other currencies, the move has looked quite different.)

That call was made almost 2 years ago-
Since then gold rose another 40% and now sits about 25% higher-
I understand that timing can make right people look wrong on any given day-so i don't discredit Stoneleigh for her call-

Who knew in 09 that the CB's of the world would make such a concerted effort to hold onto a dying system-

The thing we must remember with both gold and deflation is-
we've only had one recorded prior deflation to compare with and during that deflation gold did marvelous-better than any other asset bar none-

(pay attention only to left side of chart-during the 30's deflation)

There were only a handful of major gold miners back then and unfortunately this is the only downloadable chart-the rest of the miners history is found in history books that can be found in libraries-I've seen the snapshots-

The others were-
Placer Dome-1100% increase
Alaska Juno Gold-1453% increase
Battle Mountain Gold-1200% increase

seychelles said...

Chris Hedges writes in "Losing Moses on the Freeway" on p. 168:

"We watch impassively as the wealthy and the elite, the huge corporations, rob us, ruin the environment, defraud consumers and taxpayers and create an exclusive American oligarchy that fuses wealth and political power. We watch passively because we believe that we can enter the club....It is greed that keeps us silent."


Stoneleigh's call in 2009 was apropos
and for the same reasons is more cogent now. You will be clutching your precious gold all the way to the bottom.
When you're selling at 600 I will be buying...modestly...with my cash reserves, hoping to make a little easy money on the rebound...before TPTB confiscate gold again, just before the HI phase really takes off.

Ash said...

Official: 4 Ohio fluid-injection wells cannot open in wake of quake

"State leaders have ordered that four fluid-injection wells in eastern Ohio will be "indefinitely" prohibited from opening in the aftermath of heightened seismic activity in the area, an official said.

Ohio Department of Natural Resources Director James Zehringer had announced on Friday that one such well -- which injects "fluid deep underground into porous rock formations, such as sandstone or limestone, or into or below the shallow soil layer," the U.S. Environmental Protection Agency explains -- was closed after a series of small earthquakes in and around Youngstown.

Then on Saturday, a magnitude 4.0 earthquake struck that released at least 40 times more energy than any of the previous 10 or more tremors that had rattled the region in 2011."

jj said...

Stoneleigh's call in 2009 was apropos
and for the same reasons is more cogent now. You will be clutching your precious gold all the way to the bottom.
When you're selling at 600 I will be buying...modestly...with my cash reserves, hoping to make a little easy money on the rebound...before TPTB confiscate gold again, just before the HI phase really takes off.

Brilliant comment as usual from you-

No depth-no smarts-ZIP-just mouth

«Oldest ‹Older   1 – 200 of 221   Newer› Newest»