- Begin Excerpt
- After months of trying numerous public relations gimmicks
to calm market fears of a debt collapse in Greece, (downplaying the magnitude,
giving assurances of EU backing, and making token reforms, etc), nothing
has worked. Instead justifiable fears are spreading to Portugal and Spain.
Either the monetary union will begin to unravel or a bailout will be initiated--which
is technically not legal within current EU treaty law. Speculation is high
that despite the legal prohibitions the IMF and the European Central Bank
(backed by some sleight-of-hand-lending by the US Federal Reserve) will
engineer a bailout. The global Powers That Be (PTB) will never tolerate
the disintegration of the EU monetary union, a major stepping stone in
the New World Order.
- As the Wall Street Journal commented, "Europe's
hopes of containing Greece's credit crisis dimmed as the country's debt
woes spread to Portugal, sparking a selloff in markets across the globe
and testing the European Union's ability to protect its common currency.
The euro tumbled to its lowest point in a year against the dollar after
Standard & Poor's Ratings Services cut Portugal's credit rating two
notches and downgraded Greece's debt to 'junk' territory, a first for a
euro-zone member. The move is bound to worsen Greece's already dire fiscal
situation and hamper a recovery. The news sent the bond yields in both
countries soaring, a sign of distress." MarketWatch.com added that
"It was Spain's turn Wednesday to feel the heat from Standard &
Poor's as the ratings agency cut the country's credit rating from AA+ to
AA, pinning the decision on fears that an extended period of weak economic
growth could damage the government's budget position."
- Ambrose Evans-Pritchard, International Business Editor
of the UK Telegraph broached what everyone sees as inevitable. "The
European Central Bank may soon have to invoke emergency powers [all governments
claim them, even if not specifically authorized in founding agreements]
to prevent the disintegration of southern European bond markets, with ominous
signs of investor flight from Spain and Italy... 'We have gone past the
point of no return,' said Jacques Cailloux, chief Europe economist at the
Royal Bank of Scotland. 'There is a complete loss of confidence. The bond
markets are in disintegration and it is getting worse every day. 'The ECB
has been side-lined in the Greek crisis so far but do you allow a bond
crash in your region if you are the lender-of-last resort? They may have
to act as contagion spreads to larger countries such as Italy. We started
to see the first glimpse of that today.' Mr Cailloux said the ECB should
resort to its 'nuclear option' of intervening directly in the markets to
purchase government bonds.
- "This is prohibited in normal times under the EU
Treaties but the bank can buy a wide range of assets under its 'structural
operations' mandate in times of systemic crisis, theoretically in unlimited
quantities. Mr Cailloux added: 'This feels like the banking crisis in late
2008 post-Lehman, though it has not yet spread to other asset classes.
The ECB will have to act if it does.'"
- Tyler Durden of Zerohedge.com is disgusted by the various
maneuvers by central bankers and the IMF commitment of $100M to the Greek
bailout--knowing that it is leading to the inevitable financial meltdown
that all fiat currencies experience sooner or later. "Where does it
end? 100 billion? 1 trillion? 1 quadrillion? And yes America, this is your
money, going to bail out Greece... Then Portugal... Then Ukraine....Then
Dubai....Then Italy....Then Spain....Then Hungary....Then the Baltics...Then
the UK....Then Japan... and by the time we have to bail ourselves out,
there will be nothing left, except the Turbo Bernanke 3000... with an empty
ink cartridge and empty paper cart, while gold oz will be worth one quadrillion
Benjamins (or is that Bernankes).
- "In the meantime, as Erik Nielsen, who finally woke
up, predicted, the final bailout cost of Greece alone will be ¤150
billion. So the IMF will do rookie mistake 101 and keep raising the bailout
requirement incrementally, even as the depositor runs on Greek banks and
the ongoing strikes and riots, destroy the country. [Quoting the Financial
Times], 'The International Monetary Fund is looking at raising its share
of Greece's financial rescue package by ¤10bn ($13.2bn) amid fears
that the planned ¤45bn bail-out will fail to prevent the country's
debt crisis from spiraling out of control. Stock markets on both sides
of the Atlantic fell on Tuesday, with leading European indices suffering
their heaviest falls of the year.'"
- Even the International Monetary Fund is skeptical about
claimed growth in the G20 countries, all eager to put a positive face on
current economic woes. According to Reuters, "The world's major economies
all seem to think their growth prospects are brightening. Some of them
are bound to be disappointed. The International Monetary Fund cautioned
the Group of 20 against overconfidence this weekend after reviewing countries'
forecasts for the next three to five years to see whether proposed policies
would produce a stable mix of growth in rich and emerging economies. 'When
we put the figures together, they're rather consistent, but they're rather
optimistic,' IMF Managing Director Dominique Strauss-Kahn said on Saturday.
'And in our view, they may be a little too optimistic.' High unemployment
and even higher government debt, the consequence of the deep recession
and $5 trillion rescue, will drag on demand in most advanced economies,
and they are all looking to growth abroad to take up the slack."
- But obviously everyone can't grow equally if all economies
are dependent upon foreign sales. "Everybody expects to grow and many
of them expect to grow through exports. Not everyone can. Ending the boom-and-bust
cycles that have plagued the world economy for the past 20 years will require
some politically unpopular changes in advanced economies. The United States
must curb its debt-powered spending, which will slow economic growth. Europe
must tackle labor market reforms that won't go down well with unions. By
expecting the rest of the world to drive demand, countries may be putting
off these tough changes, Rajan said. Output in advanced countries is now
7 percent below its pre-crisis trend, and the gap is expected to remain
large for years, current IMF chief economist Olivier Blanchard said. China,
Brazil and India are growing fast and will gobble up a growing share of
world production -- the IMF thinks emerging markets will grow 6.3 percent
this year, nearly three times as fast as the advanced economies -- but
their demand still won't be enough to fill that large gap."
- As my readers may surmise, it's not just spreading to
Europe. Japan has been struggling for years with debt excesses and it's
time to pay the piper. Ambrose Evans-Pritchard reports that "Fitch
Ratings has warned that Japan's sovereign debt is rising to ominously high
levels as the workforce shrinks and deflation grinds deeper, while the
government's reserve assets may prove unusable for defense in a funding
crisis. 'The lack of a coherent and credible plan' for fiscal discipline
is likely to put 'downwards pressure on creditworthiness in the medium
- HOW IS THE US ECONOMY DOING?
- I think the best analysis this week came from Michael
Pento, of Delta Global Advisors, Inc. "A viable 'V' shaped recovery
in the economy and markets has now become the accepted view. My view, however,
is that the economic recovery will be ephemeral in nature, whereas the
real and lasting recovery will be unfortunately found in the rate of inflation.
While nearly everyone on Wall Street remains unconcerned about inflation,
the cornerstone for increasing prices has already been laid and the foundation
is nearing completion. The zero percent interest rates, which have already
been in effect for too long, will have a similar effect--think housing
and credit bubble--that a 1% Fed Funds rate did in from June 2003 thru
- "Just for the record, the target rate for Fed Funds
has been one percent or less since October of 2008. In case you are wondering
what bubble the Fed is busy blowing this time around you don't have to
look any further than the U.S. bond market. A hat tip must go to Keith
McCullough CEO of Hedgeye Risk Management for realizing that inflation
has made a salient comeback, much like the economy has. While the S&P
has inflated up 80% from the March 2009 low, inflation indicators across
the board have also gone into overdrive.
- "Last week's release of the Producer Price Index
should have sent shivers through the spines of those who worry about silly
things like profit margins. Prices for finished goods shot up .7% month
over month, while surging 6% YOY [Year over Year]. Intermediate goods surged
7.7% YOY. Crude goods soared 3.2% since March and jumped 33.4% YOY! The
Consumer Price Index is up 2.4% YOY [the actual rate is always 1.5 times
the CPI, which is manipulated downward through a variety of accounting
tricks]. Intractable inflation that is not, but it's still a far cry from
the 2% drop in CPI of last summer and in no way can be considered deflationary."
- End Excerpt
- Copyright Joel Skousen
- Partial quotations with attribution permitted.
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