- Sovereign default threatens Greece. Progressive Radio
News Hour contributor Bob Chapman warns when it goes, all troubled Eurozone
countries will follow.
- Is it imminent? Likely not. More likely is winter or
next spring. But given its troubled state, it's just a matter of time.
- Most disturbing, says Chapman, is that central banks,
"governments and financial communities have no idea how to end the
ongoing" crisis. "All they can come up with is to throw more
money at" it.
- Nothing tried so far worked. Hoping later resolution
will solve things made conditions worse. Demonstrations in Greece and across
the continent express public rage. Strikes compound street protests. Anger
portends much greater amounts because policy measures exacerbates conditions
instead of alleviating them.
- Chapman expects eventual Eurozone dissolution. He estimates
troubled economies need up to $6 trillion infused. About one-fourth of
that at best may be forthcoming, he believes.
- "The bottom line is anything above $1.5 trillion
can't be done. Thus collapse for six (troubled) countries has to come."
It's just a matter of when.
- The longer resolution is delayed, the worse conditions
get. Kicking the can down the road solves nothing. It's why today's crisis
looks worse than 2008. "The big hitters in this game (Germany, France)
cannot forgive debt of the insolvent and they cannot bail them out.
- On October 17, financial expert Martin Weiss again warned
of impending trouble, saying:
- "(D)on't be fooled" about talk of an orderly
bailout. "Any new European rescue plan, no matter how big and bold,
is bound to cause an even greater debt catastrophe."
- Four years into the crisis, time is running out. Greek
bond prices reflect default. "Spain and Italy are in death spiral."
Eurozone banks have incurred "massive damage."
- Healthier countries haven't enough funds to bail out
troubled ones. PIIGS countries Portugal, Ireland, Italy, Greece and Spain
have over $4 trillion in sovereign debt. Chapman thinks up to $6 trillion,
and daily the total rises.
- Moreover, Eurozone troubled banks have far greater debt
problems. Only nationalizing or shutting them down can work, preferably
the latter. Many are too troubled to save.
- "European leaders are desperately trying to figure
out" how to raise money amounts needed. Emerging market countries
have been asked to help.
- However, conditions are so badly eroded, there's "no
way to stop a vicious cycle already in motion!" On top of major austerity
cuts, PIIGS countries must promise more cuts. Street rage greets each new
- Each new budget cut reduces government spending. Revenue
falls. Deficits rise. Further economic weakness follows. Deep holes get
- "This is why Greece is sinking so fast. And this
is why, despite its draconian austerity measures, Greece's deficit for
the first nine months (this year) actually GREW to 19.2 billion euros,
compared to 16.65 billion euros" in 2010.
- The same vicious cycle plagues other troubled Eurozone
countries, including Eastern European ones in dire condition. More sovereign
and bank downgrades will follow, pushing up borrowing costs.
- In fact, downgraded countries and financial institutions
have $7.3 trillion in outstanding debt. Yet coming downgrades will elevate
- Spanish and Italian bond prices reflect lower ratings.
Insuring those bonds surged to troubling levels. Sovereigns and major Eurozone
banks are in death spirals.
- Danger signs abound across Europe. Even economic powerhouse
Germany will be affected. It's export-driven economy needs markets. If
demand weakens, so does business.
- On October 23, Eurozone leaders will announce their latest
master plan to save Europe. And then they'll pray in vain, said Weiss.
- The bigger their rescue plan, "the bigger the damage
to their finances (and credit ratings)."
- "And the more their credit ratings fall, the more
expensive it will be" to raise more money for more needed bailouts
when this one fails.
- In fact, eventually the rescuers will need bailing out
with no one left standing to do it. It's why German and French default
insurance now indicates far higher risk than during 2008-09.
- It's why Eurozone bonds are plunging. It's why even the
"mother of all bailouts" can't save Europe or the euro.
- Politicians may announce success. Media touts may regurgitate
it. The same song's been sung for four years. Today's crisis looms greater
than ever because solutions exacerbated trouble.
- They haven't alleviated it and won't now. At best, they'll
buy time, delaying greater crisis conditions for a later time when they'll
be too grave to fix.
- Europe and America are caught in debt traps. Raising
levels makes them worse. "(A)ll the evidence indicates that the fanfare
and hoopla are nothing more than a set-up for the next major collapse."
It's coming in the fullness of time.
- Another Grim Economic Assessment
- Economist David Rosenberg wonders how Eurozone banks
can be recapitalized without being nationalized. They're too insolvent
to do it on their own. "They can't dispose of assets without taking
- The European Central Bank (ECB) can provide liquidity
but can't boost capital adequacy. The October 23 announced bailout may
be leveraged up as markets expect, but it's "a double-edge sword if
losses pile up" as expected. It will head a dire situation toward
- Rosenberg thinks the plan will "be a farce."
If Italy has trouble rolling over its 400 billion euros of debt maturity
next year, big trouble follows.
- In the end, governments may be forced to recapitalize
themselves and their banks. Current Eurozone policy has "zero credibility."
Investors live on hopes and prayers. Nothing tried so far worked. Bluff
time soon will end.
- In his 1990 book titled, "A Short History of Financial
Euphoria," John Kenneth Galbraith said:
- "All crises have involved debt that, in one fashion
or other, has become dangerously out of scale in relation to the underlying
means of payment."
- His analysis is truer than ever today with out-of-control
- In 1933, economist Irving Fisher said:
- "The very effort of individuals to lessen the burden
of their debts increases it, because of the mass effect to liquidate. The
more the debtors pay, the more they owe. The more the economic boat tips,
the more it tends to tip. It is not righting itself, but is capsizing."
- Troubled global economies today are sinking. Rosenberg
sees years more troubled times before today's economic problems are resolved.
Already, we've had 12 years of stagnant employment and capital market capital
appreciation, and nothing ahead looks promising.
- Key economic indicators are rolling over. Weakness abounds.
Consumer spending focuses on necessities, not unaffordable discretionary
items bought more readily in better times.
- Families struggle with debt. Mortgage and utility payments
are delayed. Too often they're not paid. Foreclosures follow as well as
power shutoffs or warnings.
- September consumer expectations surpassed the 2008 low,
and lowest reading since May 1980 when the economy was seriously troubled.
Other data also forecast weakness.
- Long Beach and Los Angeles ports represent 40% of inbound
US cargo. Volume usually peaks now ahead of holiday buying. This year it
fell, in September at a double-digit annual rate. Year-over-year, the trend
is negative. It virtually never happens this time of year.
- Burlington Northern reported no typical peak in rail
traffic. Surveys show consumers intend cutting back. Credit supply and
demand are shrinking. In 2008, Bear Stearns and Lehman Bros. signaled trouble.
Today, it's troubled Eurozone economies and banks.
- Financial trouble leads the real economy by four to six
months. Even market touts may see trouble between yearend and early winter.
As Europe goes, so goes America and other global economies. In a globalized
world, trouble spreads everywhere to a greater or lesser extent.
- Estimates even say China off balance sheet debt is 173%
of GDP. It suggests fragile bubble conditions in weak economic times. The
Wall Street Journal said over 40% of its lending activity occurred through
"shadow financing." It's similar to US loan repackaging in America's
- Elsewhere, Brazil's economic index contracted in September.
HSBC's Emerging Market industrial index fell to 51.9 last month from 54.2.
It's the lowest reading in over two years when economic weakness was severe.
- Rosenberg said today's climate has "much more global
flair to it" than 2008-09. US GDP numbers dropped in four of the past
seven months. Home-buying intentions are down, auto purchase plans stagnant.
America's greatest ever housing Depression shows no signs of bottoming.
- Analysts reporting conditions through rose-colored glasses
are wearing blinders. Reality should reflect trouble, not confidence about
everything coming up roses.
- Contagion is the operative word. Trouble portends much
greater amounts coming. Forewarned is forearmed.
- Stephen Lendman lives in Chicago and can be reached at
- Also visit his blog site at sjlendman.blogspot.com and
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