… Today the crisis just went global, yet we bought ourselves another 6 months of imaginary time in which the surface will be calm but ever greater disconnects between valuations and fiscal realities, not to mention monetary distortions, will develop, ultimately all resulting in an unraveling on a historic scale.
The conclusion is that Europe just took a sharp and dramatic turn for the worse (which, however, was in many ways unavoidable). … Europe had the option of determining its own fate and doing the right thing – which would have been to take the bitter pill of acknowledging the EMU failure, cutting weak peripheral countries loose and focusing on a new, solid European core, and not … attempting to recreate a melting pot experiment of numerous completely non-compatible cultures and norms (and mentioned elsewhere, absorbing the decomposed assets of the PIIGS and turning the Euro to mush in the process).
… The Guardian reports that investors have pulled a stunning €8-10 billion since the Greek crisis commenced in earnest last November. If true, this is the beginning of the end for the troubled EMU-member country. …
If you will recall a mere 15 months back, the one factor that truuly excerbated the pre and post-Lehman fiasco, both domestically and globally, was investors’ loss of conifdence in the system (and flight) first in the deposit custodians and then in money markets themselves. … If indeed the money rush out of Greece has commenced, then it is too late to save the country. …
Putting the €10 billion number in perspective: Greece is facing roughly €8 billion in near-term maturities in April and May each. … The latest miraculous Greek bond issue, which was supposed to sound the “all clear” call, was for €8 billion. Investors in that particular GGB are already underwater.
State Controller John Chiang issued a stern warning Friday about California’s cash reserves, telling legislative leaders and Gov. Arnold Schwarzenegger they must act on nearly $9 billion in budget cuts the governor is seeking by March — or the state will run out of cash to pay its bills. …
…It’s not just about Greece any more. Worries about government debt and associated public sector liabilities (e.g., because banking systems are in deep trouble) have spread through the eurozone to Spain and Portugal. Ireland and Italy are next up for hostile reconsideration by the markets, and the UK may not be far behind.
What are the stronger European countries, specifically Germany and France, doing … ?
The Europeans with deep-pockets are doing nothing – except insist that all countries under pressure cut their budgets quickly and in ways that are probably politically infeasible. This kind of precipitate fiscal austerity contributed directly to the onset of the Great Depression in the 1930s.
The International Monetary Fund was created … to serve as an external seal of approval on a government’s credibility. Dominique Strauss-Khan, the Managing Director of the IMF, said Thursday on French radio that the Fund stands ready to help Greece. But he knows this is wishful thinking. …
Greece and the other weak eurozone countries need euro loans, not any other currency. If the IMF lent euros, that would be distinctly awkward – as this is what the European Central Bank (ECB) is supposed to control….
The IMF gave eastern Europe amazingly good deals over the past 2 years (by IMF standards). Would this fly with financial markets in the sense of restoring confidence in the PIIGSS (Portugal, Ireland, Italy, Greece, and Spain)? and their medium-term fiscal futures?
Does the IMF really have enough resources to backstop all the PIIGS? …
Anything that goes to the IMF executive board would … break the power of Europe on the international stage – perhaps a good thing, but not at all what the European policy elite is looking for. …
The financial markets know all this and last week sharpened their swords. As we move into this week, expect more selling pressure across a wide range of European assets. …
As this pressure mounts, we’ll see cracks appear also in the private sector. Significant banks and large hedge funds have been selling insurance against default by European sovereigns. As countries lose creditworthiness – and, under sufficient pressure, very few government credit ratings will hold up – these financial institutions will need to come up with cash to post increasing amounts of collateral against their derivative obligations (yes, the same credit default swaps that triggered the collapse last time). …
In such a situation, investors scramble for the safest assets available – … short-term US government securities. It’s not that the US is in good shape …
Another Lehman/AIG-type situation lurks somewhere on the European continent, and again our purported G7 (or even G20) leaders are slow to (admit) the risk. And this time, given that they already used almost all their fiscal bullets, it will be considerably more difficult for governments to respond effectively when they do …
The Euro currency decline will continue until clarity comes to the expelled member nations and to the new structure in the aftermath. The current Euro will continue to flounder in confusion, seen as a queer benefit to the USDollar. The European core with Germany and Benelux nations at its nucleus has firm fundamentals, a fact to emerge soon. … the end of the Broad Euro and the beginning of the Core Euro. The new Core Euro currency will resemble the old Deutsche Mark, whose return will coincide with other nations reverting to their former domestic currency. …
…if the Chinese economy falters, then it is very possible that commodities will fall as well, since China has been a huge market for them. …
Crux Note: … Chris is the best investor we know. We have never seen him wrong about a major market call. If you’re interested in learning where Chris is putting his money today, click here.
Submitted by Tyler Durden on 02/01/2010 16:49 -0500
… (Congressmen Paul Kanjorski:) “The Treasury and the Federal Reserve now must take needed and urgent action to stave off a potentially devastating wave of commercial real estate foreclosures and bank losses.” (and) S&P picks today to release their extended industry report titled: The Worst May Still Be Yet To Come For U.S. Commercial Real Estate Loans. …
So there you go: even S&P confirms that should all losses be recognized all at once, without the aid of accounting and regulatory gimmicks, the financial system is likely entirely underwater, and this is only on account of CRE exposure, which as most pundits have been noting should not be a concern for anyone, as it is all under control. Right. One wonders how many of the other “manageable” risk factors are sufficient to destroy banking as we know it …
(Well this was a mathematical necessity once the Federal Reserve Act was passed. It just needed time. We are here now!)
… Over the course of the past six decades, the share of (US personal) income accounted for by transfer payments has jumped more than 200 percent. …
The latest data also confirms that the financial crisis has played a major role in boosting Americans’ dependence — for lack of a better word — on government largesse, with the run-up over the past two years accounting for around a quarter of the relative increase since 1947. (Notice how this speeds up at the end — and this is the end. We won’t get the free constitutional republic based on private industry back. What we will get – after a very difficult time – is the occultists Phoenix.) …
