Visible insolvency. I say visible because they are already deeply insolvent and allowed to operate in that manner by banking regulators. Regulators who have let them do so for years and now the problem is UNSOLVABLE in my opinion. Just like the rest of the planet Europe is choking on unpayable and inextinguishable debt with no REAL growth or wealth creation! Its call insolvency…
Europe really doesn’t have the developed bond markets which are available in the United States. Most lending has been done through the banks. Quantitative Easing will be difficult to execute as the private sector debt lies mostly on bank balance sheets rather than private bond markets as in the United States. The Germans stand in opposition to purchasing sovereign debt as todays leaders remember their parents and grandparents stories of the hyperinflation of the Weimar and the 1940s. So it’s NEIN to that.
KEYNESIAN private estimates of the bad debt of $700 billion euros, more credible main stream media sources put it at 1.4 trillion, my estimate is more than quintuple (5x) that number. If the banking sectors assets average 300 to 400% of the size of Eurozone gdp of 10 trillion euro ($13.6 trillion dollars) and 15% of the lending is unrecoverable that implies 4.5 trillion euros ($6 trillion dollars=$6 million million dollars) of bad debt. They have made provisions for $60 billion euros (60,000 million of rescue funds payable over the next several years, .001 of what’s required), and the new banking laws pave the way for the whole continent to by CYPRESSED. This will be attempted in the crisis to come. Whether they get away with it is another story.
The only responsible Central bank and regulator is the Swiss national bank which is moving reserve requirements to 20% in preparation of the coming debacle of write offs. The only other central bank in the world with a 20% reserve requirements is CHINA. See last edition of Tedbits for the china story.
No reductions of sovereign debt levels have occurred since 2008, and most have climbed approximately 50% or more. The banking reform is basically an UNFUNDED farce; it is a masquerade as new rules are created to CYPRESS many banks as the eventual fireworks unfold.
The Euro is a project to gather power to the central government in Brussels. None of the aforementioned countries have the power of Seignioriage (central bank controlled printing presses), that privilege was given to the ECB when the euro was created. Which is the only way to ATTEMPT to escape the debt spirals also known as PRINTING THE MONEY. They would have failed anyway but it brings their demise a little bit closer.
Authors note: Don’t miss the next edition of Tedbits “Edge of a Knife series” where we will be covering the USA. Subscriptions are free at the new TedBits.com blog is up as well, Exit the Matrix with Austrian commentary and articles from the main stream and alternative media all in one location. A mental body builders dream site.
Yesterday the ECB had their monthly meeting and a burst of hot air came from Mario Draghi’s lips, saluting to the deflationary winds but declining to address them once again. Implying the June is D Day. Of course he is constrained as Asset backed securities, corporate bond markets are TINY as the lending sits on bank balance sheets and they cannot securitize them as to do so would require valuing them which cannot happen unless they are really marked to their true value, which would be a banking debacle. I promise you he will disappoint in June, the ECB and European commission will always be a day late and a dollar short of the solutions required to restore the illusions of growth. These people only act during crisis, almost never prior to it. Outright monetary transactions are still only a myth and QE will be too in my opinion. “Whatever it takes” is now a joke, and markets haven’t forgotten: now its fool me once shame on you, fool me twice shame on me. We are about to see how many fools there are. All decisions taken are POLITICAL first and PRACTICAL second. It is not a recipe for FUTURE stability, but rather INSTABILITY!
French economist Frédéric Bastiat wrote about the redistribution of wealth – or “ plunder” – in 1850 in The Law: “There are only two ways of obtaining the means essential to the preservation, the adornment, and the improvement of life: production and plunder…. What keeps the social order from improving (at least to the extent to which it is capable of improving) is the constant endeavor of its members to live and to prosper at one another’s expense.”
Most of Europe has been in plunder mode since Bretton Woods II in 1971. No one in the main stream media or global capitals speak of what is necessary to revive growth because none of those measures are to be considered. In fact the requirement for the policies of growth ended at Breton woods II when easy money and borrowing from the future created illusions of growth that have grown to today…
Public economic policy became Printing money, constant devaluation of money, creating debt slaves of the public and creating demand for crony capitalists from borrowing from the future to fund them rather than from economies which create wealth and rising incomes, borrowing from the future for current government consumption and raising taxes to confiscatory levels. Returning freedom and income to the private sector to restore incentives to produce has not and will not be considered by the powers that be.
FREEDOM once taken never to be returned. So don’t expect an ECONOMIC recovery either. The reason AUSTERITY is a dirty word is it means less SOCIAL BENEFITS for those who depend on them, which is virtually half of them. So cutting back the welfare state, taxes, and reforming employment and business regulations is effectively prohibited. Civil unrest looms as the future has been destroyed by the suffocating embrace of socialism and fascism. It’s the same throughout the developed world including the United States.
The welfare states have forgotten how to create wealth except the German’s who enjoy a vibrant economy based upon the creation of wealth thru their mighty industrial complexes and Middlestadt, who have been busy becoming suppliers to emerging markets, the rest of Europe, Russia and most importantly CHINA. Germany PRODUCES more than it consumes and provides more goods and services for less money aka as capitalism to those of you who don’t know this. That is the secret of their success. Capitalism is producing wealth as it always has.
Germans are running a balanced budget and export surpluses approaching 7% of GDP. They are being attacked for living prudent lifestyles, creating wealth and stability. When you live in the Eurozone where socialism is the law of the land their activities are viewed as subversive. Germany’s banks are arguably some of the weakest and most leveraged on the continent. Deutsche bank announced today an 11 billion dollar capital increase and it is being reported that the equity were sold at a discount. Take a look at this levered behemoth courtesy of www.zerohedge.com:
Doing the math 54 trillion euros is $73 trillion us dollars (73 million million divided by 11000 million=.001506), that is the size of the move of their derivatives which would wipe out the new equity. Makes you feel really small doesn’t it? Keep in mind the ALL of the big banks in the core (Germany, UK, France, Italy, Spain, Ireland, etc.) and periphery are operating at about 33 to one leverage (at minimum) versus their balance sheets and a small move against them in asset or derivative markets will wipe them out and DRIVE UP their government debts up DRAMATICALLY!
Germany is in control of the ECB and the Latin bloc is too timid to mount a coup. Public servants, elites and the public can’t bear the thought of which is growing by the day that the economy refuses to revive. The socialists are running out of other people’s money. Their policies are KILLING their economies. Elites and the public await a cyclical recovery that will never arrive. The banksters eagerly await the next bust, standing ready to gather assets at discounts and POLITICAL power in exchange for money printed out of thin air. Keep in mind: it is impossible for a modern day central bank to become insolvent as all their assets are purchased with money printed out of thin air.
Demographically Europe is shrinking as is Russia, and Japan. Think about how high youth unemployment would be if this age group was growing rather than shrinking as a percentage of the population. Socialism is doing its dirty work of shrinking and collapsing economies and spreading misery widely. Democracy is now the cover term for socialism/communism and the creed of the collective which is imploding as we speak.
In closing: No BOOM, just BUST and it is just around the corner. Deflation, stagnation, civil unrest and never ending economic collapse are the future for the Eurozone. Nothing can stop it except a wholesale change in leadership and public policies from socialist governments. Don’t hold your breath as you will die. Socialist empires and Fiat currency and credit financial systems die in waves of insolvency and the next one is just around the corner. Recovery in the Eurozone other than Germany is a STATISTICAL mirage, just as it is in the USA.
Embracing capitalism, wealth creation, competition within and outside the Eurozone, private property rights, regulatory and labor market reforms, rolling back confiscatory tax rates and reduction of currency debasement by bank credit creation for sovereign debt purchases are unthinkable by the powers that be.
They can’t even use the printing press as it is forbidden to do so. Conversely, the US, UK and Japan faces the same bleak future but they will attempt to reverse it with money printed out of thin air. Stealing what’s left of value/purchasing power from the people who are attempting to store wealth in paper. Both are recipes for financial disaster ultimately. Confidence is a fragile underpinning to acceleration of growth especially when there are no fundamental policy drivers to drive the recovery which there isn’t. In REAL TERMS Europe’s recovery is nothing but a charade and Potemkin invention of the powers that be to be fed to the useful idiots among them.
Minor crack up booms can be seen in equities and bonds in the US, UK and the Eurozone as money printed out of thin air seeks shelter from financial and economic repression. Jumping from the proverbial frying pan into the fire. The future sounds bleak and for many it will be, but in reality it is my opinion that this is the greatest opportunity in history for those that can really apply Austrian economics.
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Tightening known as the taper in the United States is occurring as we speak and Kuroda in Japan has just announced a coming taper in BOJ money printing. Combine this with reduced rates of credit creation in China as they tackle their banking system before a Minsky moment and the clear