Wednesday, 30 May 2012

Doomsday beckons

At least for the Euro.....

Spanish bond yields are rising. Everyone is waiting for another massive wave of liquidity from the ECB. And if it doesn't arrive, markets will see a massive sell-off of Spanish debt.

To put it more starkly, the ECB is trapped. If it doesn't start pumping, Spain will crash and it will almost certainly bring Italy down with it. If it does resume money creation, then its independence is lost. It will begin monetizing Eurozone deficits. It will take responsibility for meeting the massive gap between government expenditures and revenues for Southern Europe.

Once the ECB becomes the lender of last resort, it won't be able to stop. It will replace one devastating problem with another. Printing money to finance public expenditure never works. Very soon, inflation kicks off, financial markets crumble, and social unrest increases.

It may be hard to believe, but this crisis has only just begun.

15 comments:

thegovernancereporter said...

Yes indeed, everyone is waiting for another massive wave of liquidity from the ECB. Bloomberg reports EU weighs direct aid to banks as antidote to crisis. The European Commission challenged Germany’s remedies for the financial crisis, calling for direct euro-area aid for troubled banks and insisting on a “roadmap” for common bond issuance. The commission, the European Union’s central regulator, sided with Spain in proposing that the planned permanent rescue fund, the European Stability Mechanism, inject cash to banks instead of channeling the money via national governments.

We are witnessing the birth pains of a One Euro Government, where political authority, banking authority, monetary authority, economic authority and fiscal authority, are all unified in a Federal Eurozone region of governance. This is exactly what is foretold in bible prophecy by John the Revelator, as he wrote in Revelation 1:1, of those things which shortly come to pass, meaning that once they start to occur, they proceed rapidly, like dominoes falling one upon another.

Bible prophecy reveals that out of a global monetary and financial collapse, Revelation 13:3, Germany will rise as a type of revived Roman empire, to be preeminent over the EU, Revelation 13:1-4, and Daniel 2:30-33. The New Europe will be formed as leaders meet in summits, and renounce national sovereignty and pool sovereignty. Banks, such as Banco Santander, STD, will be integrated with their country of origing, ie with Spain, EWP, and all banking will be eurozone banking unified and regionalized in a federal EU bank, such as the ECB or the Bundesbank.

Today's trade lower in fiat stocks, and rush to perceived safe haven investment in US Government Bonds, together with the rise of gold evidences the death of fiat wealth, and sovereign nation states, and the rise of gold, as a money good invesment.

We are witnessing the destruction of investment capital and the rise of political capital. The fiat money system and credit is relegated to the Age of Leverage as Ambrose Evans Pritchard writes Europe's money contracts again. The diktat money system is appropriate to the Age of Deleveraging, where diktat will serve both as money and credit. Soon, regional leaders in Brussels and Berlin will lead the New Europe out of the Financial Armageddon, that is a credit bust and global financial breakdown.

droog said...

I'm unsure of whether or not this is the beginning of the end. The ECB lent almost 500 billion euros to banks in September. In march they said an additional 700 billion were in the works. All the droning on about Bankia's 20 billion request is small potatoes compared to the amount of cash the ECB is already printing out of its own volition. As far as quantitative easing we're already accustomed to it. Printing money out of nowhere could go on forever, and it can do so without fixing the situation. The crisis won't abate until employment picks up, which look impossible right now.

(The bit I don't understand is why Bankia went to the Spanish government for help when it could line up at the ECB trough like the rest of them. Clearly they want a sweeter deal than the low interest money the ECB is handing out. This speaks volumes about the calamitous state of the accounting books of the bank.)

Jim said...

@droog: I assume the Bankia issue is that its bankrupt, not illiquid. The banks borrowing money from the ECB have to put up assets against the loans. Its not unsecured. Hence if Bankia has less assets than liabilities, it has a gap which requires real capital to fill. Hence why the Spanish govt proposed recapitalising it with Spanish govt bonds, which it could then use as collateral at the ECB for cash. An idea that I think was shot down in short order by the ECB, as every nation in the Euro would have done the same the next day to recapitalise their banks too.

droog said...

Thanks, Jim. I guess that's where opinions differ. I'm on the side of those who think this isn't a liquidity crisis but an insolvency crisis. How can there be a liquidity crisis when so much cheap money is being printed and made available only (or mostly) to banks? I suppose the difference is that with regards to Bankia nobody is pretending anymore

Fact is, banks leveraged on junk assets which no longer can be spun into more complex junk assets. Bankia is like Lehman Bros: the worst of the lot, but by no means the only bank with solvency issues. And we're into year four of this ridiculous mess.

Anonymous said...

Since the issue is an over valued Euro why not just kick Germany out so the others can have the Euro find its own much lower level.

The new DM would soar and German industry would have to deal with realistic prices for it's goods.

At present, they are exploiting the weaker countries in the Euro through mercantilism and they are baulking at having to use their surpluses to keep the PIIGS afloat.

The issue has never been Greece or Spain or Ireland. It's been the attempt by Germany to use the financial flows within the Euro area to extend political domination and control of other countries through "financial discipline". Throw the Germans out and it will soon come into line.

Akabilk said...

In response to Anonymous:

It seems that Germany is to blame and the periphery are blameless if your comment is taken at face value.

In truth the situation is very complex with many reasons for it, imbalances between Germany and the rest of the euro zone (yes, all of it) being a major reason but only one. I don't think we can ignore the part that profligate spending of cheap euro debt by the southern states played in getting them to the current situation.

However, I agree that Germany is currently benefiting from the situation. This is not sustainable and they may find that they need to pay for it to be rectified shortly, or leave the eurozone as you suggest.

The remainder of the EZ may not be too happy though if Germany, now that it has benefited to the tune of billions of euros, upped and left the bill for this political folly with everybody else in the 'euro club'?

I see images in foreign media of German political leaders dressed in SS uniforms being possibly a little more common.

Electro-Kevin said...

Can Britain make anything of this situation ?

At all ?

Anonymous said...

The Common Agricultural Policy never worked - high food costs for everyone while inefficient farmers are bailed out for decades. So why did anyone think the Euro could work? Its the same writ large. A stupid politically-motivated lashup of inefficient PIGS to Germany at unsustainable rates.

Look at the parallel with post oil-boom banking. Oil nations' wealth recycled into South American debt which had to be written off; now its German wealth recycled as Euros - just debt notes - to the PIGS which will have to be written off. It will all just have to be written off in the end.

Vinay khanna said...
This comment has been removed by a blog administrator.
davidb said...

I do like the comments here.

Germany makes stuff people want to buy. They can command any price they like for Beamers and Mercs and the world will pay it. So whether it is in or out of the Euro is academic. The other Europeans have borrowed too much money cheaply because they were in the German monetary zone. Germany exports to the rest of the world and the traded currency "price" is dependent on a trade balance which is in reality the German trade surplus less just about everyone elses defecit added up.

I recall hearing some exec from BMW on the radio a few years back saying that they had to improve their efficiency by 7% p.a. to stay "competative". If that is true of all their industry they are running far ahead of the rest of the European pack.

We cannot produce low value goods in Europe any more. Germany makes high value added goods. I have just returned from a Garden show in Europe. German exhibitors were "selling" organic plants. That is the highest value end.

So while everyone else has been happy to keep borrowing cheaply, running trade defecits, and sitting on their laurels the Germans have met the challenge from China by going up market.

The currency crisis is just a symptom of the disease. The banks are bust. The Germans are right. Survival of the fittest. They dont need recapitalised, they need closed down. And people need to learn that only by honest work can we expect to have this standard of living. The free riding lifestyle is not affordable any more.

Electro-Kevin said...

David B.

Can the UK be allowed to make something for itself of Graphene and shale gas ?

I doubt it.

So you're telling me (correctly) that the country that designed the Messchersmidt has conquered - economically at least - the country that designed the Spitfire.

That the country that constructed gas chambers has become morally superior to the country that brought us George Formby ?

Our 'kalaidascope' Queen and emasculated culture - in thrall to rapping gangstas and prostrated before the altars of colonial contrition.

Boris Johnson recently stated "If the Germans want the Greeks to buy their washing machines then they ought to bail them out." Apparently he said this in perfect ancient Greek, though I am at a loss as to how 'washing machine' would translate to an ancient language.

One thing's for sure. The Germans sacked the Greeks of their gold in WW2 so it wouldn't be the first time that The Bosch have cleaned up in Greece, would it.

('scuse the Hun... I mean pun)

I'm sorry - actually no, I'm not sorry at all.

I forgive the Germans for their past misdeeds, we are hardly the ones to criticise.

The Germans want the Union ? They want the single currency ?

Then they should ruddy well pay for it or rack off.

Maloti Sarkar said...
This comment has been removed by a blog administrator.
Stevie b. said...

come on, Alice! Say something! I'm bored!

Electro-Kevin said...

http://www.chrismartenson.com/page/crash-course-one-year-anniversary

Six free videos (totalling 45mins) putting it all rather clearly.

Frederichlist said...

I have read several articles from this blog. I fear you're only repeating what journalists or "economists" say. Austerity, as you seem to believe, is nor courage neither gestion. Trade, free trade aren't neutral, and neither is money. I am looking for blogs in Britain, opponants to globalization. Does it exist ?
Best regards.