Sunday, 4 September 2011

Will September see the volcano blow?

Will September be the month when the wheels finally come off the European economy? I'm not an expert or a ‘professional’ – which means my take is likely to be highly accurate. As it has been in the past.

So here’s my scenario:

(1) Greece defaults, having resolutely refused to mend its spendthrift tax-dodging ways

(2) The only people with money, the productive Northern European Protestants, refuse, due to voter revolt, to bail them out again

(3) The banks exposed to Greek sovereign debt will now in turn become insolvent – obviously not all at the same time.

(4) As soon as one does they all stop lending to one another, precipitating a freezing up of liquidity in the real economy

(5) Enter the Northern Prods again. They’re now faced with a decision similar to, but not the same as, that faced earlier. This time the question is: Will they allow the ECB to send the printing presses into overdrive, and/or will they agree to pick up the tab for Eurobonds?

(6a) If they do, and assuming their citizens don’t reach for the pitchforks and torches, the death spiral will be countered, but at huge and grossly unfair cost to these countries. An unwelcome byproduct will be a huge surge in Eurozone inflation and eventually massively tighter political and fiscal centralisation.

(6b) If they don’t agree to pony up, then the whole banking system freezes up, literally leading to the ATMs not producing. At which stage we’re all fucked, at least for a while.

A few possible peripheral outcomes:

1: The ensuing disaster might lead to the end of fractional reserve banking, and, assuming there's a just God, with central bankers all over the world swinging from lamp-posts

2: The Chinese, with their oceans of foreign reserves, might decide to get involved to save their biggest market. Or they might take the opportunity to kick us while we’re down and get up to some of those nefarious things so beloved of Johnny Foreigner

Is my take correct?


whitevanman said...

Valid scenario. Option 6a isthe likeliest, IMHO. The Germans etc. will have to pony up as the Eurozone is fucked otherwise.

Anonymous said...

It's always nice to have a choice. Looks like we can choose to hit the iceberg first, then sink or ... we can sink first and smack the iceberg on the way down.

Even Goldman Sachs Secretly Believes That An Economic Collapse Is Coming

Goldman Sachs is doing it again. Goldman is telling the public that everything is going to be just fine, but meanwhile they are advising their top clients to bet on a huge financial collapse. On August 16th, a 54 page report authored by Goldman strategist Alan Brazil was distributed to institutional clients. The general public was not intended to see this report. Fortunately, some folks over at the Wall Street Journal got their hands on a copy and they have filled us in on some of the details. It turns out that Goldman Sachs secretly believes that an economic collapse is coming, and they have some very interesting ideas about how to make money in the turbulent financial environment that we will soon be entering. In the report, Brazil says that the U.S. debt problem cannot be solved with more debt, that the European sovereign debt crisis is going to get even worse and that there are large numbers of financial institutions in Europe that are on the verge of collapse. If this is what people at the highest levels of the financial world are talking about, perhaps we should all start paying attention.

Another quote:-

So will Goldman Sachs ever get into serious trouble for any of this?

No, of course not.

Yeah, they will get a slap on the wrist from time to time, but the reality is that the top levels of the federal government are absolutely littered with ex-employees of Goldman Sachs. Goldman is one of the "too big to fail" banks and they are going to continue to do pretty much whatever they feel like doing.

Sadly, the power of the "too big to fail" banks just continues to grow. At this point, the "big six" U.S. banks (Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo) now possess assets equivalent to approximately 60 percent of America's gross national product.

Goldman Sachs was the second biggest donor to Barack Obama's campaign in 2008, so don't expect Obama to do anything about any of this.

Uncle Nasty

Anonymous said...

Holy crap--they are kicking blacks out of Libya:

Croesus said...

Your alternatives are essentially correct. I agree with the first comment, that the Northern countries will have to act to prevent their banks going under. Will have a terrible political impact on the parties that sign up to it.

Maybe the forthcoming collapse in America will solve make the decision for them.

john said...

"Goldman Sachs secretly believes there's an economic collapse coming" ?!? BS. They KNOW it because THEY are one of the main perpetrators.
The only wild card in their plans are the red chinese ; methinks they have wrongly predicted how the slopes will act. It will be, uh, "interesting" to say the least.

kulak said...

The chattering class will wail and wring its hands.

What will be most surprising is how quickly people adapt to the new normal.

Anonymous said...

ahhh gotta love the prods, they can wear a rubber on their willie not like the prudish papes.

Shaunantijihad said...

Because the bankers own the politicians and ideology of the fascist left trumps reality and common sense every time, the government will steal every penny necessary from the taxpayers to keep the banks afloat, even if the EU tax called VAT has to go to 25%. However, they might just let a couple of Greek banks go to the wall and be bought out, just for show, but really bought out by other bust Greek banks.

They certainly are the best politicians money can buy.

Franz said...

Hasn't the Greek government of Georgious Papandreu some cheek? Their own population hates them, in fact riots against them and these mandarins are now also telling their benefactors to bugger of.

G-Pap's last remaining friends are the good people of Goldman Sachs. (Can't spell genius without "G" and "S") In the past that has been sufficient to prop up any and all treachery.

My gut feeling is that the friends of friends of GS will pull the strings to kick the can down the road one last time. And yes, the northern countries will pay one last time.

But a couple of months/weeks from now the downgrades will be coming thick and fast for Italy and perhaps even France. Then, the math for any further bailouts won't work out no more. And the already restless peasants in small countries like Finnland, Austria and Slovakia will balk at the prospect of being the designated dwarfs having to feed a debt-crazed Gulliver.

In Germany, things will look normal on the surface. Generally, we aren't good at voicing dissent when it is still time to do so.

At some point however, there will be a straw breaking the back of the hithereto phlegmatic camel. At that point, the Euro will be kaput.

I am affraid the Savant missed one wild card in his scenarios: War. If things get hairy there is a good chance that our overlords will start one. A good, old-fashioned war economy with price controls can disguise a lot of rot while the fighting gives the peasants something else to worry about than gas prices.

So watch out Iran! Fall guy needed urgently. Only Shiites need apply.

PS: For those speaking German: Enter "rettungsschirm" as search term on youtube. On the first page you'll see a cartoon of mine.

Martinus said...

I'm not a professional in this field either, but it seems I'm the only one who's seen the reports on Sky news a few weeks ago, where certain ridiculous European MPs were proposing a common tax zone - of course they'd given it a lovely euphemistic name, something like Eurozone tax harmonisation. Basically, they want to gather up all the taxes from all constituent EU states (more lining for the European Central Bank pockets) and then share it out equally - sounds all wonderful doesn't it? Real live communism in action!

Eimear said...

The most disturbing aspect about the eurozone right now is that every crisis resolution strategy depends on a moderately strong economic recovery.

The scary thing is that not only is there no strong growth - there's no growth at all!

Scary indeed.

ironman said...

The global banking system has a total of 2 TRILLION dollars of exposure to Greek, Irish, Portuguese, Spanish and Italian debt. Considering how much the global banking system is leveraged, this amount of exposure could end up wiping out a lot of major financial institutions. And the whole thing is contagious. I see hyperinflation as the inevitable result.

fiachra O'Blodbaoith said...

Fiachra O'Blodbaoith said;
The Irish Mail on Sunday---just yesterday as I write this---had a front page banner headline, thus; "You all went property mad, sneers Bertie" and do you know what it is, the smirky little git is right.The first half of the Celtic Tiger saw much that was worthwhile, in all fairness; only latterly did there enter therein an element of speculation in land, generating in due course a related speculation in property. Once a speculative bubble developes it, not unlike radium poisoning, is impossible to stop. The factor which drives it, you see, is greed, a human failing which has nothing to do with a legitimate desire to make oneself wealthy. The whole thing takes on the semblance of the January Sales---everyone is there simply because everyone is there. What we got was in essence a Ponzi Scheme, and despite example after example of what is inevitably fatal about a Ponzi Scheme we bought into it over our heads. It's all very well pointing the finger at the Bert and his kind, but we did not have to dance to their tune. Were we a lot more responsible ourselves we would not have emerged unscathed from the present difficulties, but we would be in far better shape to weather the current difficulties, including any September swansongs, than we are now.

Setanta said...

Fiachra O'Bloodbath =- I totally concur. Some of us did not go mad and plunge into property speculation of any kind. We bought houses within our means and left it at that. As you say, nobody made us go out and buy that villa in Croatia, or apartment block in Bulgaria. Or even a house worth six times our annual salaries. But those of us who acted responsibly will end up carrying the can. Just watch.

Anonymous said...

And I concur with Fiachra and Setanta.nobody was forced to buy that apartment in Bulgaria or the holiday home in Kerry.

Many were gripped by a frenzy akin to the Dutch tulip craze or the South Sea Bubble.

More than once I was half convinced that it was I who was wrong and that MY prudence was the aberration.

Fortunately I resisted the temptation,but now I still have to pay for the madness of others.

And this is in turn reflected in the International situation:the prudent pay for the profligate.As Savant says the Protestant North(and,as my wife insists on pointing out,Catholic Bavaria)will pay.

Uncle N is also correct,the American Big 6 will escape more or less unscathed despite being the ultimate instigators urged on by the Wall Street Cosmopolitans.

Bernie Madoffs astonishingly quick trial and conviction seemed to me,even at the time,to be an excellent example of smoke and mirrors,a sleight of hand to deflect the attention of the Herd from the true criminals.


Henry IX said...

Good point about Madoff. To me it felt like he was quickly thrown to the wolves so as to give the appearance that the guilty were being punished. But as we know of course, they're still thriving.

Franz said...

@ mr a

Another factor why Bernie Madoff was dispatched so swiftly, is that he robbed the wrong crowd.

He never hurt no wheat farmer in Iowa. Or looted a pension fund. He chose his marks among the chosen people.

The fool was basically scratching Tony Soprano's Escalade with his keys and then waiting to see what happens when Tony comes back.

Fiachra O'Blodbaoith said...

Fiachra O'Blodbaoith said---
I was one of the folk who was "left behind" when all around me were buying into the boom and treating me as a retard for not getting into the swim along with them. So now, I am not in any equity one way or another, owe nobody anything worth talking about---and am very mindful, in a Darwinian sort of way, of Voltaire's dictum, viz., Protect people from the consequences of their follies, said the great Frenchman, and you will fill the world with fools.Be that as it may, there is a further dimension to this; speculation. The business of speculation can work, if done prudently, but will all too often run away with itself. This does not matter overmuch if the speculation is in, say, pork bellies or childrens underwear or cultured pearls for that matter; such bubbles when they burst are apt to be local; continent-wide, but contained within the milieu. If we are going to speculate however in Land, we are speculating with some thing a) absolutely fundamental and b) which is not truly ours to play ducks and drakes with in the first place. A crash associated with land affects everyone and everything because of the uniqueness of land. Most of use can do perfectly well without copra futures or artificial diamonds or shares in shoes and ships and sealing wax, but screw around with the Creation itself and you are asking for trouble---and trouble we got.

Anonymous said...

/cough cough] Madoff was pointed out to be making unobtainable returns a long time ago and nobody wanted to know. Why he even fooled the great Nicola Horlick![/cough cough]

Setting up the patsy?

tokyo paddy said...

I was just going to make a comment about Madoff robbing his own when Franz beat me to it. But too true, too true.

Anonymous said...

Franz said...

@ mr a

Another factor why Bernie Madoff was dispatched so swiftly, is that he robbed the wrong crowd.

He never hurt no wheat farmer in Iowa. Or looted a pension fund. He chose his marks among the chosen people.

The fool was basically scratching Tony Soprano's Escalade with his keys and then waiting to see what happens when Tony comes back.

Nice one. A favourite quote of mine was from the bank robber, Willy Sutton, when he was asked why he robbed banks.

"Because that's where the money is ..."

I am waiting for a really smart criminal consortium (they are around) to rip off the Goldmann Sachses and all.

Because, right now, that's where the money is.

That rather silly movie "Swordfish" made sense in some strange ways.


kulak said...

Fibonacci, Fibonacci, everything is Fibonacci.

Anonymous said...

1) Germany - inevitably - assumes a position of extreme dominance in European affairs.
2) There is no Franco-British counterweight, as the former imperial giants are mere simpering faggots of their former selves.
3) Far-right takeover of EU in the person of Christian Strache.
4) America too weak, fat and diluted to do anything but watch porn movies and MTV.
5) EU-SS invades Russia and Arabia in order to secure energy reserves, meets Chinese troops at the Volga...


Anonymous said...

People may think I am being petty in making a big hoo-ha over this. But stop and consider. We have the administration that currently presides over the collapse of the US economy doing this:-

It seems that the Department of Justice wasn’t satisfied with merely raiding the law abiding factories of Gibson Guitar with armed agents, shutting down their operation costing them millions, and leaving the American company in the dark as to how to proceed without going out of business.

Now, according to CEO Henry Juszkiewicz, agents of the United States government are bluntly informing them that they’d be better off shipping their manufacturing labor overseas.

In an interview with KMJ AM’s “The Chris Daniel Show,” Juszkiewicz revealed some startling information.

CHRIS DANIEL: Mr. Juszkiewicz, did an agent of the US government suggest to you that your problems would go away if you used Madagascar labor instead of American labor?

HENRY JUSZKIEWICZ: They actually wrote that in a pleading.

CHRIS DANIEL: Excuse me?

HENRY JUSKIEWICZ: They actually wrote that it a pleading.

CHRIS DANIEL: That your problems would go away if you used Madagascar labor instead of our labor?


Am I the only one who sees a few petty bureaucrats squabbling over who gets the best view on the sundeck of the Titanic?

When it happens, it's going to be epic. Michael Bay would be proud.


Ian said...

Try this :

Digby said...

kulak - I read that article earlier. It all comes down to how you define mental illness. Is 'anxiety' such an illness, as the report suggests? Surely this, and more of the maladies mentioned, are natural human reactions to adverse conditions. Methinks this has emerged from a university research project funded by the drug companies.

nemesis said...

Ian - when I checked that link I also checked to see was it April 1. But you see, it makes sense. The west will pick up the tab, so it WILL kick-start the economy.

Anonymous said...

Something that amazes me is that we all sit here bemoaning the abyss that creeps steadily closer or we to it -- Take your choice. And I am reminded of a very similar historical circumstance ...

That period in 1939 and 1940 when everyone knew that there was going to be hell to pay, but no-one wanted to be the first one to buy a ticket and climb on the merry go round.

Don't you wonder if future historians will write books about this period ask each other "Why didn't someone do something?"

That is, assuming that anyone will be able to read a book in thirty years time .. let alone write one.

The last phoney war didn't end well. This one ain't going to be a picnic, either.

Uncle Nasty

Croesus said...

Strong rumours that Societe Generale will go bankrupt this month. If so you've been on the ball Savant!

Anonymous said...

I've been liquidating my portfolio over the last few weeks, buying gold.

I have ties to European Nationalists and they tell me something big is going down in the next month or so.

Anonymous said...

... and a question for the fundis.

Is this real .. or just more theatre?

Full-Blown Civil War Erupts On Wall Street: As Reality Finally Hits The Financial Elite, They Start Turning On Each Other

September 3rd, 2011

By David DeGraw

Finally, after trillions in fraudulent activity, trillions in bailouts, trillions in printed money, billions in political bribing and billions in bonuses, the criminal cartel members on Wall Street are beginning to get what they deserve. As the Eurozone is coming apart at the seams and as the US economy grinds to a halt, the financial elite are starting to turn on each other. The lawsuits are piling up fast.

Well, well… here’s your Shock & Awe:

First up, this shockingly huge $196 billion lawsuit just filed against 17 major banks on behalf of Fannie Mae and Freddie Mac. Bank of America is severely exposed in this lawsuit. As the parent company of Countrywide and Merrill Lynch they are on the hook for $57.4 billion. JP Morgan is next in the line of fire with $33 billion. And many death spiraling European banks are facing billions in losses as well.

FHA Files a $196 Billion Lawsuit Against 17 Banks

The Federal Housing Finance Agency (FHFA), as conservator for Fannie Mae and Freddie Mac (the Enterprises), today filed lawsuits against 17 financial institutions, certain of their officers and various unaffiliated lead underwriters. The suits allege violations of federal securities laws and common law in the sale of residential private-label mortgage-backed securities (PLS) to the Enterprises.

Complaints have been filed against the following lead defendants, in alphabetical order:

1. Ally Financial Inc. f/k/a GMAC, LLC – $6 billion
2. Bank of America Corporation – $6 billion
3. Barclays Bank PLC – $4.9 billion
4. Citigroup, Inc. – $3.5 billion
5. Countrywide Financial Corporation -$26.6 billion
6. Credit Suisse Holdings (USA), Inc. – $14.1 billion
7. Deutsche Bank AG – $14.2 billion

... and so on ...


Anonymous said...

New piece of info.

Apparently, Geli Baby is pulling the plug on Greece ... and maybe Italy. Can the other members of PIIGS be far behind?

“This is effectively saying to a patient, ‘No more medicine until you get better’”.

As Greek bond yields peaked and Italy looked increasingly wobbly, the Swiss National Bank intervened this morning to buy against the Franc ‘indefinitely’ to stop its rise. From Berlin, however, more details are emerging as to how and why Chancellor Merkel cut Greece’s debt-mountaineering rope yesterday…..a reality that, so far, very few outside the credit sector appear to have noticed. And this afternoon, Der Speigel suggests the same German attitude now applies to Italy.

Following the Slog’s piece of earlier today on Angela Merkel’s leaked commitment to stop Greek bailout payments immediately if it falls behind on debt and asset sale schedules, the news has largely been ignored by European markets. Some smart, very short-term money has undoubtedly gone into European stocks this morning BST. It’ll be in and out quicker than a rat in a hornet’s nest.

At first I thought we wouldn't make it to Christmas before the crash ... now I'm not sure we'll see the end of the month.


Anonymous said...

"ahhh gotta love the prods, they can wear a rubber on their willie not like the prudish papes."
@5th September 2011, 04.54

Sex is better without a condom and you can make more white babies, and the Scottish Calvinist Prods outlawed dancing because it might lead it lead to sex! The Prods invented prudery. Ever hear of the Puritans?
Talk about Northern Prods being productive is crap. The Ulster and Scottish Prods are just jumped-up Celts. I thought you were a Celtic fan lol. The Catholic Basques, Lombards, Austrians, Bavarians and Flemish are very productive intelligent hard working peoples who would put your wonderful " productive protestant northerners" to shame. The American southern rednecks are transplanted Scotch-Irish. I rest my case.