TedBits Newsletter: Edge of a Knife May 23, 2014
Europe is caught in the cross hairs of the exports of deflation from Japan and China. Delighted by the support to sovereign Bomb er bond markets, dogged by the too high euro from the capital flows and cursed by the lack of government, banking, regulatory and tax reform. So the debt spirals continue and the economic collapse rolls on. Anyone familiar with the Eurozone knows the Euro is a political project first and a practical exercise second. This week’s Financial times details this in all its gory detail, detailing how Eurozone elites toppled Governments in Italy and Greece during the heat of the crisis. It is all about gathering POLITICAL power in exchange for money printed out of thin air which rarely if ever arrives.
“Let me issue and control a nation’s money supply and I care not who makes its laws.”- Mayer Amschel Rothschild, Founder of Rothschild Banking Dynasty
Regulatory and labor corruption known as crony capitalism, confiscatory taxation and the myth of the welfare state where people BELIEVE the impossible dream that they can live at the expense of others guarantee its ultimate demise. It has destroyed any hope of real economic recovery and income growth. It is all paper and government myths to sooth the modern day serfs known as the public from from having a Marie Antoinette moment.
“Government is a great fiction, through which everybody endeavors to live at the expense of everybody else”
– Frederic Bastiat
OFFICIAL government statistics understate the deflation risks. Deflation as measured by Eurostat’s HICP Inflation index (which compensates for taxes) has ALREADY arrived in France -1 pc, -2pc in Holland, Belgium and Slovenia, -4pc in Spain, Italy and Portugal, -6pc in Greece, and -10pc in Cyprus. Add to the list in deflation Sweden and Switzerland. Eurozone wide inflation is .6 of 1 percent. It also shows that 23 of 28 countries in the Eurozone have had falling prices for the last 7 months. This is a death sentence for counties that must inflate their debts away or die. Look at the trajectory of Debt to GDP ratios for France and Italy if inflation remains in its current range.
A moonshot in sovereign debt accumulation in the France and Italy the 2nd and 3rd largest economys in the eurozone, Spain lies just in between. That is the picture of a slow death by exfixiation as debts spiral out of control and growth continues to go nowhere. At .5% inflation the top lines are understated.
Growth has been virtually NONEXISTENT in the Eurozone except Germany (the only capitalist economy on the continent). Broadly Inflation has been in freefall and momentum is fierce. Inflation in the BASICS such as food and energy continue to spiral higher. Internationally the debt spirals in developed economies continue across the globe unrestrained:
Sovereign leverage just spirals HIGHER and HIGHER! Let’s see: no growth for most of the last 4 years but debt compounding at 4 to 7% a year. WOW! This is a disaster and the European commission & central bank is waiting for it to explode and explode it will.
As this continues to unfold It has been and will be the source of great civil unrest, look no further than Italy which has not allowed a vote by the public since Beppo Grillo and the 5 star movement (anti EU) took large chunks of the legislature several years ago. Now regime change is done by elites with NO IMPUT from the voting public. Look for this to continue. France, Italy’s and Spain’s finances are crumbling before your eyes. But you wouldn’t know it from the Main stream media who is preaching the mantra that the recovery has finally arrived. GOOD News for the useful idiots who believe it.
This week’s elections for the Eurozone parliament looks to be a real eye opener as Eurosceptic parties are predicted to seize a MUCH larger slice of the balance of power in Brussels sending a MESSAGE to socialist elites in control that their time in power is increasingly on a shorter and shorter leash. Will they begin to serve the people or continue to serve their masters: elites, banksters, crony capitalists? Some things never change and these people won’t either. The answer is the latter. Look no further than Greece, France, Cypress, Portugal, Ireland, Spain and Italy to find the answer. It never ceases to amaze me the amount of abuse the European people will endure from their elite masters in European capitals. Civil unrest looms as there is no future for the younger generation under current GOVERNMENT policies except: stagnation, debt and despair. Eurozone Governments have spent the last 5 years EXPANDING their previous policies which caused the crash. Economic Growth and real wealth creation strategies have been abandoned by its political leaders they have substituted government dependency, the welfare state and fascism. Entrepreneurs have been regulated and taxed into extinction.
“It is not an endlessly expanding list of rights —the “right” to an education; the “right” to health care; the “right” to food and housing. That is not freedom. That is dependency. Those are not rights. Those are the rations of slavery – hay and a barn for human cattle.” Alexis de Tocqueville
Broad swaths of the European populations no longer can produce more than they consume, creating a constant draining of wealth creation through debt issuance which they call revenue. Bomb er bond yields in France, Italy, Spain, Ireland and Portugal are at pre-crisis levels as the hot money off the printing presses from Asia and the US seek YIELD regardless of the true state of the economy. Here’s a small illustration from Spain and Ireland of the insanity gripping bond market investors.
This picture can be seen virtually across the continent more or less and it makes me breathless. Look at the crash in rates and spreads. Spain’s total debt load is a staggering 340% of GDP if all sectors are added together. I believe these markets are pricing in a combination of oncoming deflation, hot money flows, collapsing growth and financial repression all rolled into one. Most if not all developed world sovereign bond markets sport debt to GDP levels 50% higher than pre-crisis levels with NO GROWTH for several years. In Europe they reflect a return to ECONOMIC normalcy that has not happened…
Facilitated by the Global credit rating agencies who FAIL to give the true pictures of their fiscal and financial health! Politically correct ratings rather than practically correct which allow institutions to meet investment rules, it is insidious! However investors are still GOBBLING up the debt. Who are they is the question? Can’t they do the math? OBVIOUSLY NOT!
Look carefully as the EUROZONE banks are worse than ever. Virtually nothing has been addressed since the crisis. Balance sheets remain clogged with mispriced assets; their balance sheets are 300 to 400% the size of their domestic GDP’s, lending only occurs to sovereign governments and the best of the big crony capitalist corporate sectors. The small and medium enterprises private sectors are starved for credit and issuance (except Germany) is contracting at 2 to 3 percent per year depending on the measurement you review. This is a symptom of the zombie banks they are.
No or shrinking credit growth in the private sector equals no or shrinking income and economic growth in the private sector. This chart illustrates the woeful policies of the ECB since early 2012 when credit growth went negative for the private sector. That is when the alarms should have been loudest, instead they have been ignored and the private sector which is the source of ALL REAL GROWTH is weaker and farther from ECONOMIC recovery than ever.
The Euro is bid for a number of reasons: first from capital flows from China, Japan, 2nd a run for yields, and third ECB balance sheet contraction which is aggressively moving lower as the sovereign carry trades and the LTRO expire. Take a look at the feds balance sheet versus the ECB:
Both of the previous charts are a picture of TIGHTENING credit markets in the Eurozone while the Fed powers HIGHER but at an ever reduced rate. Can you say divergence? Additionally, the ECB has NEVER really taken the toxic sludge down as the FED has done with the MBS (mortgage backed securities). Quantitative easing in the US and UK has moved Toxic sovereign debt (in the US MBS and agency debt as well) on to the central bank balance sheets while TOXIC European sovereign debt has gone into the local banking systems as always.
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The link between BAD sovereign debt and the banks is BIGGER than EVER. Look at the nosebleed PE’s of the European banking sector. Those forward projections are not going to accomplished by profit growth and the next charade of stress tests is about to commence.
The banks have done as they have always done: funding sovereign governments using a carry strategy with LTRO money, deposits and lending to crony capitalists. Out on a limb in many areas such as Russia and UKRAINE where their futures hang in the balance as a default from either will send them into