Posts Tagged ‘sovereign bankruptcy’

Tic, toc… tic, toc…

September 9, 2011

As outlined in these pages over the past few years, the hammer is about to strike the 12th hour…

Prospect Of Empty Coffers Looms Large

The gravity of the situation is indicated by the fact that the government [of Greece] has frozen all disbursements apart from salaries and pensions.

If you think only Greece is in such dire straits you have anothing thing coming… can you sing the Jaws-is-lurking tune?

Count down to war ticking inexorably away….


Plus Ça change…

August 16, 2011

These days I get up at around 4 in the morning to feed my 7 month old daughter. As she falls back to sleep after her bottle I generally cannot do the same. So I start my review of the press and blogs for the next few hours. But although in the past ten years I have often suffered brief periods of apathy brought about by the recurrent inability of our leaders to address effectively the elephant in the room, these days my apathy seems to be more persistent.

The past two days have not been different. More of the same all around. The political class in the West is all aflurry. When they are not making “ground breaking” announcement to the media they are calling emergency meetings with their peers. In either case, great sums are expended if not on new programs then on the security our public figures need these days in order to meet with their accomplices, uncomfortable in the knowledge that not only are they overtly acting illegally and against the wishes of the public they are presumed to serve but acting too against all principles of decency and common sense.

But such is the lot of a politician in the Democratic West today. Like the chap hauled to court following a failed bank heist said when he was questioned by the judge as to why he decided to rob a bank: “Because that’s where the money is your honor!”

Indeed. In the past century we have allowed our politicians in cahoots with the banks to inexorably and subtly subvert the nature of our monetary system. No longer is wealth generated by the gainful employment of human and productive capital. No sir. Wealth today is borrowed in monetary form. Or at least, that’s what the banks would like us to believe and our politicians have swallowed the lie hook line and sinker. Money = wealth. Hence our politicians’ unwavering if obtuse allegiance to the banks because of our politicians’ belief  that money comes from the bank. The concept of “capital” today no longer implies that which was created through the gainful employment of economic actors and re-deployed in order to obtain something that is of greater value still than the original input. Capital today is simply borrowed ready made from the banks and spent thus neither does it it give rise to the traditional chain of employment of resources nor, in a consumer society, does it go on to create something of greater tangible value. This is the very nature of a consumer society. We consume capital we no longer create it.

Capital today is conjured by the banks. Capital today no longer generates something of greater value than the original input thus the difficulty we face in confronting our debts.

Debt can only be repaid or written off. That’s it. There is no third way. So that if borrowed money is not employed to create tangible wealth, the result is an infinite spiral of growing debt just to stay in place.

If debt is rolled over the basic equation does not change; it still needs to be repaid or written off. But, if the capacity of the underlying economy to service the increased debt load wanes, at one point even rolling over existing debt becomes mathematically impossible. This is when gimmickry goes into overdrive. But the underlying equation does not change. In the past century, the USA have been afflicted by a similar situation twice already in 1929 and in 1970. Both instances occasioned drastic and dramatic government intervention and, arguably, at least a world war. Government intervention on both instances has created circumstances that are biting us in the ass today. For example: the origins of Fannie Mae can be traced back to the 30s and the final nail in the European monetary system was hammered in by Nixon when he closed the gold window 40 years ago to the day.

Experts can do all sorts of fancy foot work to show that debt does not matter but anyone with a basic grasp of arithmetic can see the absurdity in borrowing progressively greater amounts of money in the absence of production of intrinsic value that grows at the same rate. Over the past twenty years, Japan should have shown the futility of this strategy. Over the past ten years, the USA should have confirmed the futility of the strategy. So why is now Europe going down the same road when all major markets are evidently and glaringly bogged down in the same cesspool of debt? Insert the definition of madness here.

“If the US Government was a family, they would be making $58,000 a year, yet they spend $75,000 a year, and have $327,000 in credit card debt. They are currently proposing BIG spending cuts to reduce their spending to $72,000 a year. These are the actual proportions of the federal budget and debt, reduced to a level that we can understand.”
Dave Ramsey

John Hussman of Hussman Funds puts out a free letter every Monday morning. John Hussman may not be one of the (self proclaimed) masters of the universe but he is a fund manager that plays cards on the table and has a rather scientific grasp on all things economy and finance. Mr. Hussman’s style is sober, measured and clear. He is neither prone to flights of emotion nor fits of rage nor, indeed, to calling a spade a spade. And yet, in his latest missive “Two One Way Lanes on the Way to Ruin”, even Mr. Hussman had to call the proverbial spade a… spade.

Without question, one of the notions buoying Wall Street optimism here is the hope that the Fed will pull another rabbit out of its hat by initiating QE3. That’s a nice sentiment, but it does overlook one minor detail. QE2 didn’t work.

Actually, that’s not quite fair. The Federal Reserve was indeed successful at provoking a speculative frenzy in the financial markets, which has now been completely wiped out. The Fed was also successful in leveraging its balance sheet by more than 55-to-1 (more than Bear Stearns, Lehman, Fannie Mae, Freddie Mac, or even Long-Term Capital Management ever achieved), and driving the monetary base to more than 18 cents for every dollar of GDP – a level that requires short-term interest rates to remain below about 3 basis points in order to maintain price stability ( see Charles Plosser and the 50% Contraction in the Fed’s Balance Sheet ). The Fed was indeed successful in provoking a wave of commodity hoarding that affected global supplies and injured the poorest of the poor – particularly in developing countries. The Fed was successful in setting off a very predictable decline in the value of the U.S. dollar. The Fed was successful in punishing savers and the risk averse, and driving investors to reach for yield in risky investments that they would normally avoid were it not for the absence of yield. The Fed was successful in provoking those with strong balance sheets to pay down existing higher interest-rate debt, and in creating an incentive for those with weak balance sheets to issue more of it at low rates, resulting in a simultaneous deterioration of credit quality and compensation for risk in the financial system. The Fed was successful at boosting the trading profits of the banks that serve as primary dealers, by announcing precisely which securities it would be buying prior to Treasury auctions, and buying them on the open market a few days later from the dealers that acquired them. The Fed was successful in creating a portfolio of low yielding securities that will be almost impossible to disgorge without capital losses unless the Fed holds them to maturity. On proper reflection, the list of the Fed’s successes from QE2 is nothing short of stunning.

It is beyond comprehension why anyone would wish for more of this recklessness.

Two one-way lanes on the road to ruin

The reason we are facing a renewed economic downturn is that our policy makers never addressed the essential economic problem, which was, and remains, the need for debt restructuring. There are two one-way lanes on the road to ruin, and these – in endless variation – are unfortunately the only ones on the present policy map:

1) Policies aimed at distorting the financial markets by suffocating the yield on lower-risk investments, in an attempt to drive investors to accept risks that they would otherwise shun;

2) Policies aimed at defending bondholders and lenders who made bad loans, which they now seek to have bailed out at public expense.

There is much more in the article that is well worth a read.

As I type this, Merkel and Sarkosy are meeting for another emergency meeting and other than the pathetic big picture pronouncements that beg more questions than they provide answers, the only thing to come out of the meeting that is defined, quantified and dated is that we have to create a Eurobond. In other words, we must borrow more money.

That’s it. Nothing else. Just borrow more money and give it to the banks. Oh, and yeah. Appoint a president for Europe which, if you follow this blog, you will know dove tails perfectly with the aims of the Lisbon Treaty.

No wonder there is no shortage of politicians.

More AEP

August 9, 2011

AEP ‘s opinions now coming thick and fast…


It [the ECB] needs to launch quantitative easing on a massive scale to head off a eurozone debacle, if necessary purchasing half the entire stock of Italian and Spanish debt, they argue.

Stephen King, HSBC’s chief economist, said the ECB should drop its ideological opposition to QE and embrace easy money in “exactly the same” way as the US Federal Reserve.

“At the heart of the problem is the ECB’s unwillingness to be seen ‘monetizing’ government debt. Yet if the alternative to QE is the collapse of the euro or a descent into depression, then massive expansion of the ECB’s balance sheet seems a small price to pay,” he said.

The ECB should not ‘sterilize’ purchases of Italian and Spanish bonds to offset stimulus but instead allow the liquidity to course through the system. Dr King said the eurozone will have to embrace fiscal union in the end or face the same sort of “fiscal anarchy leading to financial implosion” that destroyed post-Soviet rouble area.”

I am not sure whether the first phrase is AEP’s or whether it is the continuation of the caption of “a chorus of economists”. Be that as it may my question is this. Economists have clearly failed to identify the potential crisis in advance. Once we were clearly engulfed by a crisis that bore striking resemblance to 1929 and 1970 economists have obviously failed to propose any solutions that have any impact on the developing crisis. That being the case, why should anyone think that going nuclear with solutions that have already been tried and are obviously discredited should now be a viable the solution? Incidentally, AEP is already on record saying that our monetary system is already hitting the buffer due to “suffocating debt”.

Also, with regards to Mervin King’s comments and his proposal for not sterilizing intervention. Sterilization is a technique that should result in a central bank intervening in the markets with no effect on inflation. Mr King is now suggesting that this massive intervention should not be sterilized presumably because he wishes to boost inflation thus a devaluation of the currency thus a rise in the general price index. The idea is to boost the economy presumably… via debasement of the currency…

BUT I HAVE A BETTER SOLUTION FOR MR. KING… why not take this money and give a government salary to every man woman and child? Can you imagine the economic boost we’d get out of that? My tongue may be firmly planted in my cheek but in the same universe where monetization of debt is deemed a viable policy, a government salary for every citizen of the realm would be a far more efficient way to achieve the same result.

David Marsh, co-chairman of OMFIF, said the statement was “half-hearted” and suggested that dissenting German hawks were imposing limits. “The ECB is clearly not going in with all guns blazing,” he said.”

As if Hank Paulson by going in with all guns blazing in 2008 with a then astounding budget of US$750 Billion (which morphed in a now astounding US$13Trillion and counting) has accomplished anything.

Investors have not forgotten that the ECB failed to stop Greek, Irish, and Portuguese yields from spiralling out of control before each needed a rescue, even though it purchased almost a fifth of their combined debts.

Gary Jenkins from Evolution Securities said Greek yields fell from 12.43pc to 7.35pc in the week following the ECB’s first bond purchases, only to creep back up over the next six weeks.

Jacques Cailloux, Europe economist at RBS, said the ECB’s intervention had stopped a collapse of South European bond markets for now, but ultimately the ECB will have to act as buyer-of-last-resort on a huge scale.

Investors will take advantage of bond rallies to cut exposure to Italy and Spain, shifting the risk onto the ECB and the taxpayer. The crisis will flare up again if the ECB stops buying.

Here AEP hides behind comments of other pundits and market participants. Nonetheless, sentence after sentence confirms that what is being suggested has already been tried and has already mathematically and spectacularly failed for if it hadn’t we would not be in this predicament at present.  But, it seems leaders and experts take comfort in the fact that “intervention has stopped a collapse for now”… but why has none of them noticed that whatever issue caused the problem then is now an even bigger issue? Why can none of them see the diminishing marginal utility of debt?

Barely a month ago the consensus thought recovery was at hand. “We were looking at the end of QE, and exit strategies, and we could see an oasis across the desert.”

There was never any such consensus. Not arithmetically, not intellectually and not even in any given parallel universe. This is pure propaganda

Obama’s TV intervention…

August 8, 2011

… and that’s all we have left… personal conviction… albeit the personal conviction of the President of the United States… but if you consider that his speech is scripted, that’s all we got left to put things right… a rousing and emotional  “yes we can” speech praising the creativity, humility and readiness for abnegation of the American people and not much else…

Despite the reams of empirical evidence that prove that we have reached the end of the road, the President of the United States of America wants to convince you that everything is all right and that there is no emergency to panic about and, crucially, no need to change course… everything is in hand and will be sorted… Scout’s honor… don’t pay attention to the arithmetic I am POTUS and I tell you we’ll sort it out.

That’s all you need to know… now get back in line to get your food stamps…

Ambrose Evans Pritchard’s latest…

August 8, 2011

You know how I feel about AEP.

Some interesting excerpts:

The decision to throw everything we had at the crisis after Lehman-AIG was a legitimate gamble at the time, given the near certainty of depression if shock therapy had been tried – as in 1931

In his opening salvo, AEP says that Keynesian policies have failed. Most Western countries have pushed their debt burden to the limits of safety and yet, our debt burden has not diminished.

It is too early to say the policy has failed, and failure is a false term when leaders confront cruel choices. Yet last week’s drama has brought home the truth that suffocating debt has not gone away; it has merely hopped on to the shoulders of sovereign states, threatening just as much damage.

Considering that the trajectory of debt has been demonstrably proved unsustainable for the past 40 years, one wonders why it should be puzzling that adding even more debt upon old debt should fail to diminish the overall debt burden…

I too want a column in The Telegraph.

But it gets better. Having established that overall debt burdens have worsened and are now threatening our entire socio/economic construct, AEP now advocates stretching this aberrant situation even farther in time… I am not making this up…

The US Treasury is right to disregard the verdict and keep risk weightings unchanged to avoid a cascade of forced debt sales.

In the same breath, AEP chastises the rating agencies for not having acted 6 years ago (whilst himself too was egging the farce on during the same period of time) but now wants to avoid doing what should exactly have been done 6 years ago if not earlier.

But it gets better.

If China had not distorted world trade in this fashion, the US would not be in such a mess.

Considering that the USA have been steadily devaluing the US$ over the past 40 years, and considering the WTO, and considering corporate tax legislation in the USA and considering the expedient manipulation lower of interest rates in the USA, and considering Western corporations are very happy to set up production facilities in China and sell their wares back into the West… saying that China distorts world trade is arrogant and ignorant mixed with decline-of-empire sour grapes.

But wait!! Just when you thought he might be done!

Unlike America, Europe still has stimulus cards it could play. Yet EMU politics prevents the use of these cards.

AEP just finished saying that Western countries are pushing the limits of this monetary system and our obtuse remedies have made things worse rather than better… and he goes on to lament the fact that there should be legislative obstacles to doing more of the same…

I absolutely must get me a column in The Telegraph too. Seriously; how difficult is it to dish out pablum and continuously contradict yourself?

Not content with having slagged China, AEP goes on to slag Germany.

“Germany still fails to understand the logic of monetary union: that (Teutonic) surplus states have a duty to boost demand in order to offset austerity in (Latin) deficit states until equilibrium is restored. Instead, Berlin is imposing a 1930s Gold Standard formula of deflation decrees through the EU machinery, with the burden of adjustment falling on debtor states. ”

Besides the fact that AEP claims there to be a logic in monetary union he also advocates that it is not those that have taken advantage of the system that should now pay the consequences. If the banks ever had any shills, AEP certainly qualifies as a high ranking officer in the shill army.

We may learn over coming days whether the European Central Bank is at least willing to stop the bond crisis in Italy and Spain from spiralling out of control.

The sheer inability of Mr. AEP to observe reality is staggering. I’m not an economist but if the ECB now has to bail out Italy it is because it has singularly failed staunch crisis in Greece, Ireland and Portugal. Considering that the financial crisis in these three countries is still smoldering and that countries like France are now about to lose their AAA at a time when the US has already lost theirs, why would throwing more money at Italy stabilize anything? And, anyway, didn’t AEP just say that we’ve been unable to diminish our debt burdens and that is a bad thing? So, which is it Mr. AEP?


The search for a scapegoat has begun.” claims AEP. All I can say is: pot, kettle. Remember what you just said about China?

In closing, AEP says:

Yet the Bank for International Settlements is surely right that we are pushing ever closer to the limits of a model that relies on artificial stimulus to keep stealing extra prosperity from the future. There is ever less to steal.”

What is that? Is it contrition? Is it resignation? Is it recognition of the fact that our leaders deliberately pursue aberrant and regressive policies?

Is AEP suffering from a psychological condition?

Breaking up the Euro

June 27, 2011

As I speculated some two years ago, it seems to me that if anyone should leave the Euro it is Germany. The rationale is that weak members need the union more than the union needs them. Conversely, the union needs strong members more than strong members need it.

Even assuming Greece should leave the union, I don’t see how other weak members could stay on.  If Greece goes, borrowing costs will sky rocket for all other weak members thereby hastening their demise. This in turn brings about two dilemmas. First, if all weak members start falling off the wagon then how many members other than Germany might be left? Second, even assuming Greece should go, this will bring about the marking to market of Greece’s debt held by the ECB… which I think should bring about the marking to market of all other sovereign debt held there… in other words this would be the “poof!” moment for the ECB thus the dissolution of the EU…

In my view, the path of least complication is if Germany quits the Euro and the EU


Mobs roaming the streets

June 9, 2011

My “tic,toc… tic, toc” posts of the recent past must now give way to the proverbial resounding “boing” of high noon.

Gangs are now openly threatening our city centers in Europe and in the USA.

Count down to global conflict very much on track for 2012/2015

Memorial Day Mobs: Boston, Nashville, Long Island, Miami, Rochester, and Charlotte

Wildings occurred in other cities on Memorial Day weekend in what may have been coordinated flash wildings. Gangs swarmed beaches in Boston, Nashville, Long Island, Miami, Rochester, and Charlotte in what some believe was a social media coordinated effort. (Hat tip: Second City Cop)

Read more:

Fascism inexorable ascent

June 9, 2011

If you missed or, worse still, did not think anything of repatriating a combat brigade from a theater of war in order to deploy it at home for “civilian” operations…

… or if you thought that militarizing the Boy Scouts was a welcome bit of creative fun thinking…

… then you probably won’t find it at all incongruous that a quintessentially civilian entity as the Department of Education presubably is should be gearing up for urban combat too…

And, of course, if you gear up to do something then at some point you will inevitably try your hand at doing what you are gearing up to do if for no other reason than you need to practice your new found skills… But if you are new at doing something, a degree of fuck-ups is inevitable…

… but since practice does make perfect, I would expect lots more snafus…

Lest we forget what happens when government becomes the largest actor in the economy:

Someone remind me why it is so hot these days and what we are doing in a hand basket…!?


Thought provoking…

June 6, 2011

Michael Hudson’s “Europe’s new road to serfdom” – self explanatory title and far more eloquent than I can ever hope to be. Some cogent excerpts:

In May 2010, French President Nicolas Sarkozy took the lead in rounding up €120bn ($180 billion) from European governments to subsidize Greece’s unprogressive tax system that had led its government into debt – which Wall Street banks had helped conceal with Enron-style accounting. The tax system operated as a siphon collecting revenue to pay the German and French banks that were buying government bonds (at rising interest-risk premiums). The bankers are now moving to make this role formal, an official condition for rolling over Greek bonds as they come due, and extend maturities on the short-term financial string that Greece is now operating under. Existing bondholders are to reap a windfall if this plan succeeds. […] Finance is a form of warfare. Like military conquest, its aim is to gain control of land, public infrastructure, and to impose tribute. This involves dictating laws to its subjects, and concentrating social as well as economic planning in centralized hands. This is what now is being done by financial means, without the cost to the aggressor of fielding an army. But the economies under attacked may be devastated as deeply by financial stringency as by military attack when it comes to demographic shrinkage, shortened life spans, emigration and capital flight. ”

The emphasis has been added of course but that’s really all you need to know.

You probably don’t remember the name Bernard Von NotHaus, do you. Thankfully if uncharacteristically for the main stream press, the New York Sun does and offers this thought provoking editorial: “Von NotHaus’ Question” – cogent excerpts are too many to report without copying and pasting the entire article so whilst I hope you’ll give it a read here is a teaser:

[…] it is hard to think of a more basic question than that being raised by Von NotHaus in respect of whether the government has the power to outlaw private coinage of money. The issue was raised by Von NotHaus’ conviction in March of two counts related to his issuing of silver medallions called Liberty Dollars. There were no complaints from the persons who bought Liberty Dollars or took them in exchange for goods. The fact is that Liberty Dollars have held their value even while the value of the fiat dollars issued by the Federal Reserve has plunged, to barely a fifth the value of what they were worth at the start of, say, the Bush administration. This is not lost on anyone looking at the case. One can imagine that this humiliation was keenly felt by the federal government that brought charges against Von NotHaus.

The Von NotHaus question is not dissimilar to the question raised by Ashcroft vs. Arar as well as a host of other recent rulings that have all but suspended (trampled?) the constitution of the United States of America not to mention plain old decency.

But how can the government of a Western country presumably steeped in democratic principles and boasting a transparent and open society be allowed to deliberately and freely chip away at those very principles that make it the presumed envy of developing societies the world over? Why, you terrorize your own people and then you tell them they need protecting from evil forces that resent them for their way of life.

During the years leading up to the American Revolution, the British attempted to stifle the growing independent nature of the colonies by issuing laws such as the ‘Writs of Assistance’, bypassing rights to privacy and allowing officials to search homes and businesses at will without probable cause, supposedly in the name of “capturing smugglers”. Not fully satisfied with this intrusion on the lives of the colonists, King George and his cronies issued the ‘Quartering Acts’, which required all colonists to welcome soldiers sent to subjugate them into their homes and to their dinner tables. According to law, early Americans were not only forced to allow warrant-less searches of their homes, they also had to show hospitality to the goons sent to dirty their doorsteps!

The purpose of these actions by governments is to assert their control over a population. THAT – IS – ALL. Rationalizations are always made; usually in the name of “protecting the public from harm”, but the real name of the game is imperialism, and fear. When the establishment violates the line of citizen privacy, and gives its agents the legal free reign to enter your home at will, the message they are trying to send is: “Your property is our property. Your life is our business. The law does not protect you. The law is our weapon.” In other words: Resistance is futile.

Social unrest a precursor to total war.. tic-toc… tic-toc…

May 25, 2011

Things are coming together nicely. What we are missing is for these localized national movements to coalesce across borders and Bob will be your proverbial uncle… our leaders will precipitate a conflict requiring drafting millions into the war effort…

Of course, the alternatives are only two. Let things develop and do nothing. The sequence of events would go something like this:

– mobs start roaming the streets looking for some politicians and bankers to lynch

– governments are taken down wholesale

– political and social strife for control

– likely rise of an extremist government

Second alternative, would be to come clean, let the banks fail, abolish central banks, repudiate debt based fiat money, place monetary policy within the democratic framework and prosecute all fraud dating back to, say, the past 10 years.

So, what are you going to do?… To answer this question it helps to know that similar junctures in history have resulted in global conflicts. Global conflicts typically preserve banking and, to a certain extent, political interests.

Some of us consider ourselves progressive, others conservative. Some of us are believers, some not. Some of us have clearly defined ideologies, others are apolitical, but we are all concerned and angry about the political, economic, and social outlook which we see around us: corruption among politicians, businessmen, bankers, leaving us helpless, without a voice.