Saturday, 27 November 2010

Weekend Update – November 27 2010

Europe on the Abyss.

Baltic Dry Index. 2200 +45
LIR Gold Target by 2019: $30,000. Revised.

“We have decided to socialize the private losses of the banking system.”

Professor Nouriel Roubini.

The great Bilderberger “United states of Europe” project in ruins, Europe’s serial bunglers have now mismanaged the Euro crisis to the point where even the bankruptcy of Germany cannot be ruled out. By socialising the private losses of banks, the nation states of Europe are all sequentially falling one after another. Stay long precious metals. What is really falling is fiat money and the financialised crony casino capitalism, bankster and squid economy it bred. Now sensing the ultimate in profits, the great vampire squids have turned on the banksters. A hysterical farce, if it wasn’t so serious as to wreak ruination on the middle class and the poor. While today it’s Europe on the abyss of fiat currency disintegration, Europe’s fall will bring in the fall of all of the fiat currency tokens that pass for modern money. The great Nixonian blunder of August 15, 1971 is entering its death throes. Unfortunately, our deluded leaders and central banksters aren’t yet ready to give up on the corpse of fiat money. And so we blunder along form one attempted fix to another, each fix worse than the one before, as the squids and banksters desperately try to preserve their wealth and position, by socialising the losses and privatising their few remaining profits. But now, the great vampire squids see the end game. Their interests have separated from the dying banksters. They have turned on their former allies, sensing that the existing banking system and fiat money cannot be saved. Within 5 years our fiat currency system will have changed. Will the euro still be with us in December 2011?

"We need only take our heads out of the sand to see clearly that interventionism not only has failed to provide the promised something-for-nothing, but has led to all sorts of undesirable consequences. Indeed, many are just beginning to realize that we are moving towards disaster even though we have been on a wrong heading for decades."

Leonard Read

EU rescue costs start to threaten Germany itself

The escalating debt crisis on the eurozone periphery is starting to contaminate the creditworthiness of Germany and the core states of monetary union.

By Ambrose Evans-Pritchard 6:00AM GMT 26 Nov 2010

Credit default swaps (CDS) measuring risk on German, French and Dutch bonds have surged over recent days, rising significantly above the levels of non-EMU states in Scandinavia.

"Germany cannot keep paying for bail-outs without going bankrupt itself," said Professor Wilhelm Hankel, of Frankfurt University. "This is frightening people. You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver. It is like an underground Switzerland within our borders. People have terrible memories of 1948 and 1923 when they lost their savings."

The refrain was picked up this week by German finance minister Wolfgang Schäuble. "We're not swimming in money, we're drowning in debts," he told the Bundestag.

While Germany's public and private debt is not extreme, it is very high for a country on the cusp of an acute ageing crisis. Adjusted for demographics, Germany is already one of the most indebted nations in the world.

Reports that EU officials are hatching plans to double the size of EU's €440bn (£373bn) rescue mechanism have inevitably caused outrage in Germany. Brussels has denied the claims, but the story has refused to die precisely because markets know the European Financial Stability Facility (EFSF) cannot cope with the all too possible event of a triple bail-out for Ireland, Portugal and Spain.

EU leaders hoped this moment would never come when they launched their "shock and awe" fund last May. The pledge alone was supposed to be enough. But EU proposals in late October for creditor "haircuts" have set off capital flight, or a "buyers' strike" in the words of Klaus Regling, head of the EFSF.

Those at the coal-face of the bond markets are certain Portugal will need a rescue. Spain is in danger as yields on 10-year bonds punch to a post-EMU record of 5.2pc.

Axel Weber, Bundesbank chief, seemed to concede this week that Portugal and Spain would need bail-outs when he said that EMU governments may have to put up more money to bolster the fund. "€750bn should be enough. If not, we could increase it. The governments will do what is necessary," he said.

-----"Italy is in a lot of pain," said Stefano di Domizio, from Lombard Street Research. "Bond yields have been going up 10 basis points a day and spreads are now the highest since the launch of EMU. We're talking about €2 trillion of debt so Rome has to tap the market often, and that is the problem."

The great question is at what point Germany concludes that it cannot bear the mounting burden any longer. "I am worried that Germany's authorities are slowly losing sight of the European common good," said Jean-Claude Juncker, chair of Eurogroup finance ministers.


Ireland Seeks Aid Deal Before Markets Open as Bank Bonds Fall

Nov. 27 (Bloomberg) -- Ireland is in the final stages of negotiating an international aid package to rescue its financial system before markets open on Monday after investors yesterday dumped the bonds of its largest banks.

Euro-area finance ministers may seal an agreement with Ireland tomorrow, with a teleconference slated to begin at 4 p.m. Brussels time, a European Union official said on condition of anonymity. The loans may cost as much as 6.7 percent, compared with a rate of 5.2 percent paid by Greece, state broadcaster RTE said, without citing anyone.

The need for a pact, which may be worth 85 billion euros ($112 billion), is intensifying as capital flows out of the nation’s banks. The Irish government two years ago assured senior bondholders they wouldn’t lose their money if banks failed. For negotiators, the risk is that breaking the pledge may spark concerns about the quality of other euro-region debt.

“One possible scenario is that the financial package for Ireland could include an element of restructuring affecting senior debt,” Fitch Ratings said in a statement yesterday. “Fitch has no visibility of this matter but notes that such a restructuring could have wider implications for the euro area.”

Allied Irish Banks Plc and Bank of Ireland Plc bonds fell yesterday on concern the government will abandon a pledge to protect senior bondholders and instead force them to share the bailout costs. EU and International Monetary Fund officials are taking legal advice on how senior bondholders can share the cost of the rescue without triggering lawsuits, the Irish Times said yesterday, without saying where it got the information.


Bracing for Bailouts 11/26/2010

Which EU Problem Child Will Be Next?

First came Greece, then there was Ireland. The EU is gaining experience in helping out their member states' failed economies. But how long can that last? SPIEGEL ONLINE takes a country-by-country look at the nations on the brink.

Fear is spreading in Europe. How many countries are going to need bailouts -- and how many billions of euros will that take? And is the entire euro alliance at risk?

After Greece had to be rescued with a spectacular aid action earlier this year and then Ireland earlier this week, it is no longer a quest of if another country will require a bailout, but when. Most experts are in agreement that Portugal will be the next country to require assistance, despite denials from Lisbon.

But what scares those who deal with euro policy the most is the situation in Spain. The €750 billion program set up by the European Union and the International Monetary Fund for dealing with the euro crisis may be enough to cover Greece, Ireland and Portugal without problems, but there could be problems if a bailout is needed for Spain, which is Europe's fourth-largest economy.

On Wednesday, Spain's government took pains again to assuage fears. "An abyss separates Ireland from us," Deputy Finance Minister Jose Manuel Campa told the Spanish daily El Pais. However, his comments didn't seem to move the financial markets. Interest yields on 10-year Spanish government bonds rose to over 5 percent for the first time since 2002. Speculators fear the risk of bankruptcy in the country has increased.


Guest Post: Greece → Ireland → Portugal → Spain → Italy → UK → ?

It is now common knowledge that there is a potential domino effect of European sovereign debt contagion in roughly the following order:

Greece → Ireland → Portugal → Spain → Italy → UK

While some people have been writing about this for well over a year, many others have joined the party late (there are now over 600,000 hits from a Google search discussing this topic.)

It is also now common knowledge that while Greece and Ireland have relatively small economies, there will be real trouble if the Spanish domino falls.

Iceland has the world’s 112th biggest economy, Ireland the 38th, and Portugal the 36th. In contrast, Spain has the world’s 9th biggest economy, Italy the 7th and the UK the 6th. A failure by one of the latter 3 would be devastating for the world economy.


"Increasingly, the wealth of the modern world has come to be represented by financial assets rather than real assets, and this to me is a very unhealthy situation, because financial assets are inherently unstable. Financial assets (currencies, bonds, mortgages, stocks, bank credit, etc.) can be quickly and violently reduced in value, or destroyed completely by either inflation or deflation."

Donald J. Hoppe


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