Merkel Thinks Greece Will Default

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Andrew Neil of the BBC has just twittered today that the British Foreign office has reported:

Angela Merkel thinks Greece will default !

Unbelievable that she would come out and say it even though everybody else has thought this for a long time. Normally the process is to DENY, DENY, DENY. Not long now folks till the shit hits the fan.


Debt Supercycle

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Chris Martenson submitted an excellent article of an interview with John Mauldin on ZeroHedge regarding the “Debt Supercycle” which was a concept originally introduced in the 1930s by Irving Fisher. In a nutshell it means

  that when there is a buildup of too much debt within an economy, there reaches a point where there simply is no other available solution but to let it rewind.

According the Martenson the US has now reached that point where the debt supercycle has ended and needs to be paid off.

You can’t look to monetary policy for help (which will try to stimulate businesses to get more debt) because debt is the problem. If you are drunk and you need to cure yourself; another fifth of the whiskey is not the answer. So when debt becomes the problem, when it gets to be too much, more debt is not the issue. You’ve just simply got to work it off. There’s no easy way out of it. And, it takes years to work through it. It takes a long time, generally — 60 to 70 years, in the US’s case — for these debt cycles to build up. It’s when you can no longer adequately service your debt and the market loses confidence in your ability to service the debt at a price that it finds adequate.

Normally to deal with debt you can try to grow your way out, but

The problem is, when you’re at the end of the debt supercycle, when you’re running up against your ability to borrow money, that liquidity no longer works.

So you can either repudiate the debt, you can default on it, you can monetize it, you can try to grow your way out of it; but you’re going have to deal with it. And there’s no easy way, when you’re at the end of the debt supercycle, when debt has become too much. Printing money doesn’t work.
So Europe is already has gone too far according to Mauldin, Japan is nearly there and will have disastrous consequences when it finally falls and the US will suffer 5-6 years of very low growth. Bottom line is if debt is not caught early in the cycle, then there is no easy solution but to let it unwind. 

As Fisher pointed out, the time to solve the debt bubble is before it becomes a bubble. He was wanting separation of commercial banks and lending. He wanted a much less fractional-reserve-based banking because he wanted the debt to keep from building up past levels that we saw in the 1920’s. He saw that as something that was so bad that it created the Depression.

Unfortunately every time the business cycle was about to break down in the US, printing presses kicked in and along with low-interest rates there was always somebody there to buy the debt. Finally we are reaching that point where money printing no longer works, hence debt supercycle is reached.

Germany Pushes For Greek Sovereignty

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Germany has called for Greece to cede it sovereignty as has been reported this week in the Financial Times.

The German government wants Greece to cede sovereignty over tax and spending decisions to a eurozone “budget commissioner” to secure a second €130bn bail-out, according to a copy of the proposal obtained by the Financial Times.

In what would amount to an extraordinary extension of European Union control over a member state, the new commissioner would have the power to veto budget decisions taken by the Greek government if they were not in line with targets set by international lenders. The new administrator, appointed by other eurozone finance ministers, would take responsibility for overseeing “all major blocks of expenditure” by the Greek government.

Even before Germany circulated its proposal, the EU and International Monetary Fund had presented a 10-page list of “prior actions” Athens must implement before the new bail-out is agreed. According to a copy of the document, also obtained by the FT, Greece must cut an additional 150,000 government jobs within three years.

But it gets worse for Greece as the EU and IMF have called for a number of actions to be completed before another bailout, including :

1. Absolute priority to debt service
Greece has to legally commit itself to giving absolute priority to future debt service. This commitment has to be legally enshrined by the Greek Parliament. State revenues are to be used first and foremost for debt service, only any remaining revenue may be used to finance primary expenditure.

2. Transfer of national budgetary sovereignty
Budget consolidation has to be put under a strict steering and control system. Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time. A budget commissioner has to be appointed by the Eurogroup with the task of ensuring budgetary control.

As pressure is ratcheted up and more sovereignty to be handed over, Mike Shedlock reckons

Expect Greek “Bank Holiday” Soon

Perhaps I am mistaken but I do not see any chance Greece will agree with this proposal.

German and IMF demands make meaningless any hint of a deal “soon”. Germany has signaled it has had enough and will not throw another 130 billion euros down a rat hole. The IMF signaled the same thing but not as emphatically.

Thus, if Germany does not back down and the IMF insists on a 10-page list of “prior actions” a Greek exit from the Eurozone is at hand. 

Look for a “bank holiday” in Greece soon.

2012: $7.6 Trillion of Debt To Turnover

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Guess how much debt the worlds leading economies are rolling over this year according to Bloomberg. $7.6 trillion and if you included interest payments its over $8 trillion.

Looks like they will all be competing for the same buyers. Best of luck 😉

Europe is Warmup, US is Main Event.

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Peter Schiff CEO of Euro Pacific Capital, gave an interview on RT’s Capital Account. Below is the video clip but the main points are as follows:

  • We are in intensive care and zero interest rates prevent the cure.
  • We need higher interest rates, more savings, lower property prices, less government spending and to balance the books.
  • Europe is the warmup and America is the main event.
  • We are where the real sovereign debt crises is going to be and it will be enormous.
  • It was going to happen because of mistakes government made in the past, but it will be worse because of mistakes made in the present.
  • We haven’t had a free market for a long time and is getting less and less free.
  • The more government gets involved in the economy, the more they screw it up.
  • We are going to have an inflationary depression worse than the 1930s. Everything the government is likely to do will exacerbate it.
  • The more government stimulate, the worse it gets.
  • We are a lot sicker than we were in the 1930s. We know what the cure is but we can’t get the politicians to allow the economy to swallow it.
  • We are in a climate where real tyranny can flourish. Look at what happened in Weimar Republic, Germany. After hyper-inflation we got the Nazis.
  • We are going to have civil unrest and rioting.
  • Ultimately we will have price controls even though government currently are denying we have inflation, because prices will be so high.
  • Government may start to silence the voices of people. They can already classify anyone they want as a terrorist.
  • Young people are getting the message now. So there is hope.

Irish PM Lets Mask Slip

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The Irish Taoiseach (Prime Minister) Enda Kenny was in Davos this week and caused a storm back in Ireland by his comments. When asked what caused the crisis in Ireland he responded:

‘What happened was that people simply went mad borrowing

This is unbelievable because just six weeks earlier he said:

‘Let me say this: You are not responsible for the crisis

The real causes of the crisis is the following which he well knows:

1. Low interest rates caused by being in the euro. Especially when Ireland needed to raise them to stop property bubble and high inflation. Of course low-interest rates meant nobody saved. People invested in property as a pension because they got so little in the banks.

2. Government never warned the property bubble was getting out of control, despite been warned repeatedly by its own Dept of Finance (which it ignored) , OECD, IMF, ERSI etc.

3. Media never warned the people, because they made a fortune from advertising.

4. Anyone who spoke out was laughed at. Taoiseach (Prime Minister) Bertie Ahern once famously said these people should “commit suicide”.

5. Banks massively changed their lending policies, where the golden rule was you could only get a maximum of 2.5 times your yearly salary plus 1 times your spouse, it went up to nearly 10 times you salary. In fact there was stories of people be encouraged to make up figures.

6. The opposition political parties (including current Taoiseach Enda Kenny) keeping their mouths shut. Strange that 😉

7. Banking Regulator and Irish Central Bank did NOTHING.

8. Bank auditors DID NOT DO THEIR JOB. Including letting Irish Permanent deposit €7bn overnight in Anglo Irish Bank to cook the books for the audit and then transfer back once audit was over.

9.Governement tax policy was completely wrong. It was setup for property based taxes EVEN THOUGH THEY WERE WARNED. When the property bubble was about to collapse naturally in 2002 they pumped it up with first time buyer grants in invester tax breaks. When over 20% of GDP was based on property they kept going.

10. Guaranteeing the banking system and taking on its debts. What a F**king disaster. WHICH IS THE REAL REASON IRELAND IS FUCKED.

Fianna Fail’s Niall Collins said:

“Where was the Taoiseach’s harsh criticism of European banks which helped flood Ireland with credit for years? He should be standing up for the Irish people and challenging the role of the banks when he has the chance,” he said.

Sinn Fein‘s Padraig Mac Lochlainn said

“This analysis that people in Ireland went drunk with credit, were reckless and they have to now be cleansed by a decade of austerity is very worrying.”

And finally, after paying back €1.25bn to junior bondholders of a bank that DOESN’T EXIST ANYMORE, Enda Kenny had to say about the €30 bn of IOUs (promissory notes) that Ireland has to pay to bondholders of the bank that DOESN’T EXIST ANYMORE.

The Taoiseach said there would be no discussion at next week’s summit on reducing the level of debt associated with Anglo Irish Bank’s bailout.

The European Central Bank is understood to be open to proposals to replace Anglo Irish Bank’s €30bn promissory note or government IOU, for another type of debt repayment.

Finally, Enda enjoy Davos. After all we’re paying for it. 😉

source: Irish Independent

Cashless Society Coming Soon

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There has been warnings for years of the banks moving away from cash to an electronic financial system. In the latest move in Ireland, the National Irish Bank will no longer handle cheques. It announced in 2010 that it wasn’t going to handle cash.

Asked how a customer who needed €5,000 in cash would get it, a spokesman for the bank said that a branch could issue a bank draft if the money was needed urgently. This could be taken to a post office and cashed there.

We have already seen capital controls on Italy with plans to limit withdrawals to €300.  Greece too announced in 2010 that it would limit cash transactions to a max €1500. These are not large amounts.

It’s a disturbing (1984) move which looks to be started with the PIIG nations first. Lets face it, their citizens  have more things to worry about right now. The trend looks to be moving toward an electronic system controlled by the banks of course. More control by the banking system never ends well.


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