Tag Archives: Default

Heads I win, Tails I….er…win?

The American Dollar is on its way up because everyone has woken up and is rushing towards it as fast as they can. Why this sudden (but expected) reaction? Because no matter what happens in the USA as a result of the battle between the Republicans and Obama, the dollar is the one world currency which will always trade and will always bounce back.

Never mind that hundreds of thousands of poorly-paid American employees aren’t being paid, never mind that America is quite likely to default on its debts as a result of Congress possibly blocking the raising of the $17 trillion debt ceiling. Those things just DO NOT matter. Why? Because of the numbers.

To every other country on Earth a debt ceiling of $17 trillion seems beyond huge! It appears to be beyond management…but you have to remember that the USA’s  annual economy is worth approximately the same amount! In addition,  the worldwide trade in the American dollar is about $4 trillion PER DAY  and even though much of the trade is by algo-trading, such vast volumes mean that there is little chance of business suddenly drying up!

The dollar trading volume  every FOUR DAYS is roughly equivalent to America’s entire debt! So, even if the USA defaults on its debt, the worldwide dollar trade will continue.

A very high percentage of these trades will be in derivatives and high-speed meta trading. Whatever the views are on this modern equivalent of the three-card trick (blink and you’ll miss it), as the owner of the world’s reserve currency, America can get away with economic choices and techniques open only to it.

Whatever happens in the States, the global economy, especially within the Eurozone, will remain fragile.

The American economy has given a very good impression of having been in recovery for several quarters but the maximum collateral damage that the current Washington crisis can cause, will be to make the ersatz recovery look even more unconvincing. That’s unlikely to give the Fed, Obama or even the Republicans too much of a headache.

The whole affair will not be dealt with by means of finesse or any subtle change in policy. It will be the equivalent of a fiscal sledgehammer! Uncle Sam’s customary solution to any issue!

We live in a  “meta-money” driven financial system which sits above (and below) the “real” economy. It manages to both influence and to be driven-by the real economy which gave birth to it (that’s the old-school economy which is based on profits derived from either manufacturing or providing a service).

Stockmarkets, whose original purpose was to raise capital to fund business are now no more than piles of gambling chips to be plundered (mainly) through the medium of high-frequency trading – a mutation of “simple” capitalism.

The goings-on in America will generate billions – no matter what the outcome, because bets are currently being placed on all scenarios and outcomes. In the main, it will be Republicans or, strictly-speaking Republican-supporting business placing the bets.

That’s because Washington’s political agenda is being driven by right-wing business because it is they who are funding the Republican right-wing and ultimately, their agenda is very straightforward. They want Obama out. The Republican left-wing has to go along for the ride.

The outcome will be similar to that which has developed in the United Kingdom over the last few years – big business (specifically Banking) and not the electorate will drive the political agenda.

They have the chips AND the cash.

(The IMF’s Christine Lagarde has just made the customary panic announcement that the Americans should sort themselves out. “Vite! Allez!!” ….Calm down, love…let them finish the game.)

Greek party leaders seek deal as bankruptcy looms

By NICHOLAS PAPHITIS
Associated Press

ATHENS, Greece (AP) — Greek party leaders on Tuesday will seek a long-delayed agreement on harsh cutbacks demanded to avoid looming bankruptcy, amid intense pressure from its bailout creditors to reach a deal, a general strike disrupting public services and thousands of protesters taking to the streets of Athens.

Heads of the three parties backing the interim government will confer with Prime Minister Lucas Papademos on new income cuts and job losses, which Greece’s eurozone partners and the International Monetary Fund are demanding to keep the country’s vital rescue loans flowing.

A general strike against the impending cutbacks stopped train and ferry services nationwide, while many schools and banks were closed and state hospitals worked on skeleton staff.

Police said up to 14,000 people took part in two peaceful anti-austerity demonstrations in Athens. The separate marches were to converge on central Syntagma Square, outside Parliament, which has been the focus of demonstrations over the past two years of economic pain.

On Monday, Prime Minister Lucas Papademos’ government caved in to demands to cut civil service jobs, announcing 15,000 positions would go this year, out of a total 750,000. The decision breaks a major taboo, as state jobs had been protected for more than a century to prevent political purges by governments seeking to appoint their supporters.

Athens must placate its creditors to clinch a euro130 billion ($170 billion) bailout deal from the eurozone and the IMF and avoid a March default on its bond repayments.

Among the measures the EU and IMF are pressing Greece for is a cut in the euro750 ($979) minimum wage to help boost the country’s competitiveness. This reduction would have a knock-on effect in the private sector – because private companies also base their salaries on the minimum wage – and even unemployment benefits. Unions and employers’ federations alike have deplored the measure as unfair and unnecessary.

“It is clear that there is a lot of pressure being put on the country. A lot of pressure is being placed on the Greek people,” Finance Minister Evangelos Venizelos said during a break in talks with EU-IMF debt inspectors late Monday.

He called on coalition parties to work more closely together.

“To save Greece … will involve a huge social cost and sacrifices,” Venizelos said. “On the other hand, if the negotiations fail, bankruptcy will lead to even greater sacrifices.”

“No one is as strong as Hercules on his own to face the Lernaean Hydra,” a swamp monster in Greek mythology, he said. “We must all, together, fight this battle, without petty party motives and slick moves.”

A disorderly bankruptcy by Greece would likely lead to its exit from the eurozone, a situation that European officials have insisted is impossible because it would hurt other weak countries like Portugal.

But on Tuesday, the EU commissioner Neelie Kroes, in charge of the bloc’s digital policies, said Greece’s exit wouldn’t be a disaster.

Kroes told Dutch newspaper De Volkskrant that “It’s always said: if you let one nation go, or ask one to leave, the entire structure will collapse. But that is just not true.”

Greece has been kept solvent since May 2010 by payments from a euro110 billion ($145 billion) international rescue loan package. When it became clear the money would not be enough, a second bailout was decided last October.

As well as the austerity measures, the bailout also depends on separate talks with banks and other private bondholders to forgive euro100 billion ($131.6 billion) in Greek debt. The private investors have been locked in negotiations over swapping their current debt for a cash payment and new bonds worth 50 percent less than the original face value, with longer repayment terms and a lower interest rate.

Greek government officials say they expect private investors to take losses of an estimated 70 percent on the value of their bonds.

The EU-IMF bailout will also provide an estimated euro40 billion ($52 billion) to protect Greek banks from immediate collapse. Domestic lenders and pension funds hold some 34 percent of the country’s privately-owned debt.

However, the bailout has to be secured for the deal with private investors to go ahead as about euro30 billion from the bailout will be used as the cash payment in the bond swap deal.

Greece’s coalition party leaders held a first key meeting on the austerity measures on Sunday, and postponed a second round of talks by a day so Papademos could complete negotiations with EU-IMF debt inspectors that ended early Tuesday.

The leaders have already agreed to cut 2012 spending by 1.5 percent of gross domestic product – about euro3.3 billion ($4.3 billion) – improve competitiveness by slashing wages and non-wage costs, and re-capitalize banks without nationalizing them. But the details remain to be worked out.

Creditors are also demanding spending cuts in defense, health and social security.

European Commission spokesman Amadeu Altafaj Tardio said Monday that Greece was already “beyond the deadline” to end the talks.

Also Monday German Chancellor Angela Merkel warned that “time is pressing,” and “something has to happen quickly.”

While Greece remains cut off from international bond markets – where it would have to pay interest of about 35 percent to sell 10-year issues – it maintains a market presence through regular short-term debt sales.

On Tuesday, the public debt management agency said Greek borrowing costs dropped slightly as the country raised euro812 million ($1.06 billion) in an auction of 26-week treasury bills. The coupon was 4.86 percent, compared to 4.90 percent in a similar auction last month, while the auction was 2.72 times oversubscribed.

Derek Gatopoulos in Athens and Gabriele Steinhauser in Brussels contributed to this report.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Greece and the Deutschebond

Hopefully, Europe is NOT relying on yesterday’s conference call between Angela Merkel, Nicolas Sarkozy and Greek Prime Minister, George Papandreou.

Lets not beat around the bush. The Greek government lied in order to gain entry to the Eurozone. It did it with the connivance of Goldman Sachs who were paid $190 million for their trouble. CLICK HERE.

Euro auditors ought to be in Athens performing Due Diligence in order to make sure that the numbers stack-up and more importantly, that Athens really is making progress and reducing its budget deficit.

The days of “My word is my Bond” are over.

Greece is an economic Basket Case which will be a  drag on the Eurozone economy for ever. Historians will also know that Greece tends to make a habit of going bust and defaulting.

The destructive influence of Greece is now causing rifts within Europe and there is now a very real danger of the German government disintegrating.

Finally, empty pronouncements by senior European officials which are designed to manipulate Stock Market prices MUST stop.

The ONLY morsel of common sense was delivered yesterday by Guido Westerwelle, Germany’s Foreign Minister. He said: “….we  believe you can’t fight debt in Europe by making it easier to take up debt.”

We all know that economic GROWTH is the answer. That’s something that Greece will not be capable of for years – if ever.

Eurobullshit!

I  pointed out a few days ago that it seemed as if there was an orchestrated effort by politicians and bankers to put-out weekly or bi-weekly “Statements of Intent” — purely in order to placate the Markets as well as to postpone the inevitable collapse of the Euro. That means NOT actually doing anything but promising to do something, sometime in the future. It’s the new “Weapon of Choice” for  politicians whose ideas have run out.

THIS week is shaping up as a very special example of this comparatively new phenomenon.

Today, the Markets have responded well to yet more wind and wee from a politician.  So whose turn was it THIS time?

None other than European Commission President himself –  Jose Manuel Barroso!

Let’s have a close look at what he said and maybe ascertain whether his statement actually contains any “doing” words.

He said that he will put forward moves to tackle the Eurozone crisis.  “Put forward”? “Moves”? What moves?

He will urge the Eurozone countries to issue joint bonds. “Urge”?  “Joint Bonds”? How will he “Urge”?

Unsurprisingly, Italian Finace Minister Giulio Tremonti supports Eurobonds.  Italy is vastly over-borrowed – to the extent that its attempt to borrow even more from China was given very short shrift by the Chinese – even though the Italians were offering security.

The fact that George Soros (no less) has backed the concept of Eurobonds was weaved into the equation. Ancient George’s ONLY motivation is to save Uncle Sam – not Greece or Italy.

The main player in the Eurofarce , Germany, is NOT even remotely interested in the Eurobond because, effectively, it with be the “Deutschebond”. German Charity.

Barosso wants a United States of Europe. Pure and  Simple.

He went on:

“I want to confirm that the Commission will soon present options for the introduction of Eurobonds.” Soon? How “soon”, Jose? “Options”? WTF?

Jose does NOT give up easily: “Some of these could be implemented within the terms of the current treaty, and others would require treaty changes.” “Treaty changes“, Jose?

That’s lots of meetings and could take years. That might just keep the markets interested!

He really declared his hand when he said that “the measure” on its own was not enough to solve the Eurozone debt crisis. (What “measure”, Jose? So far,we’ve only heard Eurobullshit)

He said Europe needed a “Federalist Moment” to rescue it. He argued that the solution to the crisis would have to involve the “Community method” which presumably, like the Rhythm Method involves someone being screwed. For instance: the Taxpayer and the Investor?!

Finally!!

( Isn’t it amazing how few NUMBERS there are in a statement about fiscal deficits?)

Dans la merde or in der Scheiße?

Good to see Italy and Greece on top.

I just have a look at the European stock markets and on the surface everything appears to be quite normal.

The banks are doing especially well!

Today’s showing in the markets is the most clear indicator so far, as to the utter confusion generated by the intransigence and incompetence of senior politicians.

Today President Nicolas Sarkozy of France and Chancellor Angela Merkel are involved in pointless discussions with Greek Prime Minister George Papandreou. Why pointless? Because they probably all began their telephone conference chat with this afternoon’s communique already written.

Chancellor Merkel has expressed the schizophrenic views of the Eurozone. She has stated that the Eurozone will not allow Greece to default but on the other hand Greece will not secure access to the next 8 billion euro bailout unless new budget cuts are made.

Greece will be running out of cash in about three weeks.

Everyone, understandably, is beginning to feel frustrated and impotent at the pace of the so-called rescue package.

If the Eurozone is serious about the Greek bailout, the cash should be handed over today. That more than anything will placate the markets which must by now be feeling as if they’re on a bad acid trip. The current situation is certainly a candidate for the old 1960s hippie slogan ‘Stamp out reality’.

In reality though, the politicians will wish to leave all options on the table rather than make a move which could be catastrophic. The fact is that whichever move they make, there is bound to be either a national catastrophe or a pan-European catastrophe. More likely both.

That in turn will generate an American catastrophe ; the U.S has been teetering on the edge for many months.

There is only so much time that we can all just stand staring into the abyss.

Currently we are all keeping an eye on Ben Bernanke and the Federal Reserve, because we fully expect them to start printing money at any minute.

In fact we should be looking at the French because it cannot be too long before they make a similar decision – and they will probably ink their printing presses well ahead of the Americans.

If the French go ahead and print money in order to provide a cushion for the French banks against a Greek default and the Greek default overhead anyway, it will be the equivalent of them having unnecessarily dumped billions of euros.

Unfortunately, that’s the ONLY plan which the French government has.

Today, the United Kingdom has announced another 80,000 unemployed between May and July. That is NOT the sign of an economy in recovery. THAT is the sign of an economy still in recession. The official unemployment figure in now in excess of 2.5 million. In fact, the actual number has probably been in excess of 3 million for quite a while.

In recent months there has been a bit of Schadenfreude-induced gloating from the United Kingdom’s senior politicians and commentators in respect of the Eurozone’s woes. That will stop very soon –  as our meagre exports dry up because no-one in Europe has the cash to pay for them.

It is not just the Eurozone which is crumbling, it is EUROPE.

It is NOT just the European Economic Class System which is going to be everyone’s downfall. It is  NOT because the “HAVES” dictating to the “HAVE-NOTS”.

On a macro level, the vast socio-economic differences within the Eurozone do no more than reflect socio-economic differences within individual states.

They tried an experiment whereby the poor (countries) were expected to compete with the rich and as we should all know by now, this type of  “Faux cross-border Socialism” can never work.

There can always be “liberté” and “fraternité” between such disparate  states but there can never ever be anything even vaguely resembling “égalité” between the rich and the poor.

In the Eurozone, some are definitely more “égal” than others.

Currently, the more equal are terrified that the less equal will take them down.

(Personally, I believe that Greece will be allowed to default. Glad I kept those Drachmas!)

What did the Greeks ever do for us?

The politicians are very happy to accept credit for taming the debt dragon which, in fact, they themselves created by allowing the banks a free rein for far too long.

The Bank of England’s solution of Quantitative Easing, that is to say handing more and more cash to the banks has done little else apart from allow institutional investors and  the investment banks to maintain Stock prices at  falsely high levels and to push Commodity prices to new stratospheric levels.

These days, the name of the game is to hunt around for any excuse to push the markets higher and higher – not by buying stock and holding it but by keeping it on the move, i.e.   “working those shares”, thus making a dying market look as if it is in rude health.

Last week’s announcement about a possible Greek bailout moved prices up as did the Greek government’s announcement that their austerity measures had been voted through. Good news is all that investors want to hear.

They are all in La-la land!

Scratch the surface and what do you see?  How do all the investors really feel about the possibility of a Greek default? In short, they KNOW that it is going to happen.

That is clearly demonstrated by how much they are willing to pay in premiums for the insurance  contracts which are designed to protect them from future losses in case of default.

The equation is simple, the more the likelihood of a default, the bigger the premium.

The billions in bailouts have made no difference to the perceived likelihood of Greece defaulting and in fact, the likelihood of a total collapse and default is increasing daily.

Today, the cost of insurance against a Greek default is FOUR times greater than it was when their Euro partners announced the very first bailout package.

On May 12, 2010  the European Union (EU) and International Monetary Fund (IMF) announced a €110 billion  bailout for Greece. At that time, the cost of insuring $10 million in bonds against a Greek default was close to $540,000. Last week, it was $2.3 million –  FOUR  times more!

As a comparison, when Lehman Brothers failed and even when the likelihood of a global collapse was at an all-time peak, the absolute maximum that investors were willing to pay for $10 millions-worth  in Greek debt-default insurance was only $52,000.

So, the premium for the cover has increased from $50,000 to over $2 million for the same amount!!  THAT’S FORTY TIMES MORE!!!

To put it simply, investors believe that the likelihood of a Greek default is over 40 times greater today than it was at the height of the 2008 financial crisis.

Meanwhile the politicians are celebrating. Do they really believe that as far as the Greek economy is concerned it’s “job done”? Of course not. Not really!

It’s all window dressing, prevarication, obliquity and procrastination, designed to protect the Sacred Cow of the Euro for the time being, in the vain hope that by some miracle, under-investment and austerity will reboot the Greek economy.

The austerity measures which have been agreed for Greece – massive tax increases and suffocating spending cuts will make it impossible for Greece to pay both its bills AND its debts.

In the United Kingdom we are following the same path to decreasing government revenues by killing entrepreneurial confidence and creating the ideal conditions for another recession – or worse.

Like any business, making staff redundant and selling assets is not the way to generate higher net revenue because in the background, debts are constantly increasing. Both Sovereign States and Commercial enterprises have been forced into this totally nonsensical process.

Without new revenue streams and by “over-slashing” costs there is only one possible end-game. All that we are all achieving is putting-off the evil day whilst at the same time hoping for the lottery win which never comes.

The lotterry win which our own Chancellor is hoping for, is a sudden Phoenix-like rising of  non-existent entrepreneurs who do not have the non-existent backing of the banks. These entrepreneurs’ job (theoretically) is to create new businesses or grow existing ones in order to create employment and produce goods which we can exchange for foreign currency.

Greece is hoping for a similar Miracle on Skid Row but in reality, it will survive through the summer and then the begging bowl will reappear. This time, however, it will remain empty.

So, who do we believe? The politicians who have achieved very little except boot the can along a narrowing cul-de-sac OR the investors who are willing to pay incredible insurance premiums to protect the money that they have lent? The Dreamers or the Pragmatists?

In spite of very generous Euro handouts, Greece is already twitching and Rigor Mortis will have well and truly set-in by the final quarter of 2011.

The answer of who to believe is telegraphed to us daily by people who know – the global investors. Nowadays “buy and hold”  investment seems almost anachronistic.  If you look at Stock prices every day,you will see that they move up and then down , then up again….etc……What is known as a volatile market.

So what WILL the end game be?  What will the Greeks do for us?

Firstly, both European and American banks will collapse (again). European Banks have loaned money to Greece but it is the American Banks who are holding a lot of European bank debt. If European bank shares plunge to ridiculously low levels, financial markets could freeze whilst at the same time, investors will want to withdraw their non-existent money.

Incidentally, money is already being withdrawn and in the last 10 days, over $50 millions has gone from primary money market funds.

Secondly, the market for short-term debts — especially corporate IOUs (commercial paper) may freeze up. (That’s what happened in 2008 as a result of the Lehman Brothers collapse). The difference is that for instance in the United States, the Federal Reserve will not step-in with guarantees or cash – they have said so. Safety net gone.

No doubt other Central Banks will come running-in with the sticking plaster and splints but hopefully, by then, we will have learned to recognise more futile attempts at a temporary fix.

Thirdly, Greece has more cash tied up in debts than their economy produces in a year (debt/Gross Domestic Produce ration of over 100%).  Greece is not alone. Their protests and riots may be just a foretaste of what most Western economies will experience in the not-too-distant future. America is just one example of an economy which has passed the danger threshold and is currently playing a waiting game.

It is not just the well-publicised countries such as Spain, Portugal, Ireland and Italy which are on the brink. The United Kingdom is not far behind.

So what do we do? Do we dance to the politician’s drum-beat?

To a certain extent we have to. Even a wounded tiger is dangerous, so we are forced to ride it along with our governments.

However, we should follow the facts and not believe government “spin”. Do not forget that a skilled tailor can make a hunchback look straight – and our governments have been sewing like crazy for nearly three years!

We (as individuals) should ensure that whichever institution (bank or insurance company) is holding our money, has the ability, will and wherewithal to fulfil its obligations. Not all of them do. Some will have to rely on more government handouts and guarantees.  When you want your money, you want it in full and NOW.

Finally, we should all be very very vigilant.

Remember the 2008 crisis?  The banks did see it coming but to all outward appearances, it all seemed sunny and “business as usual”. Profits….. bonuses……..obsequious governments prostrating themselves before the Gods of Banking…..

Once bitten……….

Nearly forgot: Happy July 4th