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Gold, Eurodollars, and the Black Swan that will devour the US Futures and Derivatives Markets

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by Jesse at CaféAméricain
Posted December 3, 2011

THE EURODOLLARS ESTIMATE IN THE CHART BELOW IS BASED ON THE BIS BANKING ESTIMATES from Commercial Banks and may not include official reserves held by Central Banks. As you know the Federal Reserve stopped reporting Eurodollars some years ago, with the consequence that it also stopped reporting M3 money supply. I like to think of Eurodollars and banking system derivatives as the Fed’s off-balance-sheet method of monetization and policy implementation, with plausible deniability.

Swap lines are provided to other Central Banks, and they in turn make the loans to their member banks, and from there to their customers. So this eurodollar creation is made outside the real domestic economy, and therefore has no immediate effect on domestic money supply and prices at the end of the money chain. But the effect is there, and the smart money closer to the financial system sees it coming. I do not know if the Fed’s swap line activity actually shows up immediately in their Balance Sheet and therefore the Adjusted Monetary Base. But I think it is fairly obvious that if swaps are used to create dollars by foreign central banks, who in turn loan those dollars to their own members, the impact of that broader dollar creation will only be felt with a significant lag in the domestic US economy. But it will be felt at some point.

When the Fed was tracking Eurodollars, I believe that they were not counting certain assets, or liabilities from the banks point of view, as money.  What exactly those assets might be and how liquid they are is a open question.  How much of them were held in Agency debt, and how much in Treasury debt?  Is a liquid obligation held by a foreign source part of the broad money supply, or not?  Since it can be quickly converted into dollars, and then into another currency, leaves little question that it is potential money at least.

At least part of the problem being faced by Europe in this crisis is the sharp point of the deleveraging of US assets underlying dollar denominated debt.   And if foreign confidence in the US dollar debt breaks, the losses would be daunting for the holders of that debt, so there will first be a rush into Treasuries and away from Agency debt and CDOs.  This will be like the ocean retracting, causing people to flock to the shore in wonder at the cheapness of the debt.  But eventually the returning tsunami of US dollars may very well swamp the Fed’s Balance Sheet and the domestic US economy and the savings of many. The hyper-inflation of financial paper is happening quietly and  off the books. The growth rate in derivatives held by the Banks is mind boggling. And how this will manifest in the real world economy is not fully known. A good sized chunk of the financial system may simply vaporise.  And I suspect that the policy makers will heavily allocate the damage to the least powerful members of the private sector.

Ownership of the real economy will continue to be concentrated in fewer and fewer hands. Stagflation is the most likely outcome because of this lack of reform and the rise of a self-serving oligarchy. As for the US Dollar, as I have said on numerous occasions, inflation and deflation are at the end of the day a policy decision. Period. Those who see a hyper-deflation or a hyper-inflation as inevitable elude my knowledge of the facts as they are. The Fed owns a printing press, and it uses it selectively.

Speaking of lags, I think the unusually long lag between the growth in Eurodollars and the price of Gold can be attributed to the gold sales programs by the Western Central Banks. Once those programs were suspended, and the Banks turned again into net buyers, the gold price rose dramatically. The most recent Eurodollar operation of the Central Banks in relieving the Dollar short squeeze in euro is not yet in the totals.

It should also be noted that there are other correlations one can use in determining the gold price, most notable ‘real interest rates.’ However, there are linkages amongst all the variables, given a non-organic increase in the money supply and artificially low interest rates for example being among them. So, when will the price of gold stop rising? Most likely when the Central Banks stop printing money, and return to transparently set market based interest rates and a productively reformed financial system. ‘Not on the horizon’ does come to mind.

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It’s your choice, Europe: rebel against the banks or accept debt-serfdom

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by Charles Hugh Smith
from Of Two Minds
Posted December 4, 2011

THE EUROPEAN DEBT BUBBLE HAS BURST, AND THE REPRICING OF RISK AND DEBT CANNOT BE PUT BACK INTO THE BOTTLE. It’s really this simple, Europe: either rebel against the banks or accept decades of debt-serfdom. All the millions of words published about the European debt crisis can be distilled down a handful of simple dynamics. Once we understand those, then the choice between resistance and debt-serfdom is revealed as the only choice: the rest of the “options” are illusory.

The euro enabled a short-lived but extremely attractive fantasy: the more productive northern EU economies could mint profits in two ways: A) sell their goods and services to their less productive southern neighbors in quantity because these neighbors were now able to borrow vast sums of money at low (i.e. near-“German”) rates of interest, and B) loan these consumer nations these vast sums of money with stupendous leverage, i.e. 1 euro in capital supports 26 euros of lending/debt.

The less productive nations also had a very attractive fantasy: that their present level of productivity (that is, the output of goods and services created by their economies) could be leveraged up via low-interest debt to support a much higher level of consumption and malinvestment in things like villas and luxury autos.

According to Europe’s Currency Road to Nowhere (WSJ.com):

Northern Europe has fueled its growth through exports. It has run huge trade imbalances, the most extreme of which with these same Southern European countries now in peril. Productivity rose dramatically compared to the South, but the currency did not.

This explains at least part of the German export and manufacturing miracle of the last 12 years. In 1999, exports were 29% of German gross domestic product. By 2008, they were 47%—an increase vastly larger than in Italy, Spain and Greece, where the ratios increased modestly or even fell. Germany’s net export contribution to GDP (exports minus imports as a share of the economy) rose by nearly a factor of eight. Unlike almost every other high-income country, where manufacturing’s share of the economy fell significantly, in Germany it actually rose as the price of German goods grew more and more attractive compared to those of other countries. In a key sense, Germany’s currency has been to Southern Europe what China’s has been to the U.S.

Flush with profits from exports and loans, Germany and its mercantilist (exporting nations) also ramped up their own borrowing – why not, when growth was so strong?

But the whole set-up was a doomed financial fantasy. The euro seemed to be magic: it enabled importing nations to buy more and borrow more, while also enabling exporting nations to reap immense profits from rising exports and lending.

Put another way: risk and debt were both massively mispriced by the illusion that the endless growth of debt-based consumption could continue forever. The euro was in a sense a scam that served the interests of everyone involved: with risk considered near-zero, interest rates were near-zero, too, and more debt could be leveraged from a small base of productivity and capital.

But now reality has repriced risk and debt, and the clueless leadership of the EU is attempting to put the genie back in the bottle. Alas, the debt loads are too crushing, and the productivity too weak, to support the fantasy of zero risk and low rates of return.

The Credit Bubble Bulletin’s Doug Nolan summarized the reality succinctly: “The European debt Bubble has burst.” Nolan explains the basic mechanisms thusly: The Mythical “Great Moderation”:

For years, European debt was being mispriced in the (over-liquefied, over-leveraged and over-speculated global) marketplace. Countries such as Greece, Portugal, Ireland, Spain and Italy benefitted immeasurably from the market perception that European monetary integration ensured debt, economic and policymaking stability.

Similar to the U.S. mortgage/Wall Street finance Bubble, the marketplace was for years content to ignore Credit excesses and festering system fragilities, choosing instead to price debt obligations based on the expectation for zero defaults, abundant liquidity, readily available hedging instruments, and a policymaking regime that would ensure market stability.

Importantly, this backdrop created the perfect market environment for financial leveraging and rampant speculation in a global financial backdrop unsurpassed for its capacity for excess. The arbitrage of European bond yields was likely one of history’s most lucrative speculative endeavors. (link via U. Doran)

In simple terms, this is the stark reality: now that debt and risk have been repriced, Europe’s debts are completely, totally unpayable. There is no way to keep adding to the Matterhorn of debt at the old cheap rate of interest, and there is no way to roll over the trillions of euros in debt that are coming due at the old near-zero rates.

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U.S. Corp and the impending IMF merger

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by Robert Denner
of Daily Economic Update
Posted December 1, 2011

BEEN LOTS OF TALK AROUND LATELY REGARDING THE COLLAPSE OF THE U.S. DOLLAR AND WHAT THAT WOULD MEAN FOR THE UNITED STATES OF AMERICA AND THE WORLD. There has also been a lot of talk about the Federal Reserve Bank of the United States of America and how unhappy the people of the US are getting with this largely unknown organization.

These two forces are converging together in what could be a very serious and detrimental way as it relates to the average US citizen. This article will rely heavily on flawed analogies to help the lay person understand the inner workings of both the IMF and the Federal Reserve Bank. This is not to be taken as an academic piece and I would ask that it not be judged as such. This is meant to help those people that have recently woken up to the reality that their country has been hi-jacked and those that are desperate to get up to speed as quickly as possible. So let’s jump right into the thick of it shall we? First we need to start with what I hope are simple lessons so that you can take what I am about to teach you and apply it to the real world.

There is one thing that bankers and computer people love to do and that is to use big scary acronyms to scare off the simple folk. So here is your first lesson.

IMF and the SDR

So right off the bat we are using acronyms that mean absolutely NOTHING to the lay person and yet that is an actual sentence believe it or not… IMF stands for the International Monetary Fund. The SDR is short for Special Drawing Rights and is the currency of the IMF. The International Monetary Fund is a private bank that is used to help sovereign nations engage in international commerce. Just like if you owned a company and you used bank A, and your supplier used Bank B, the IMF would be the bank that both banks A and B used to transfer payments and credits back and forth to each other. To Company A and B (using Bank A and B) it would be seamless.

But the IMF does a whole lot more for the global economy. They are the creditor of last resort for a lot of countries. For if you want to engage in international commerce in the free world (meaning the world now) you must be a part of the IMF system. Should a country that is part of this system become over leveraged because of mismanagement and debt accumulation, the IMF stands ready to come to the rescue. To understand how this relationship has worked in the past (and the present); I MUST go into some history. I will keep it brief I promise.

To understand how the global monetary/commercial world works you have to go back to the end of World War II. Following the war the United States was alone as a major industrial power. The rest of the industrial countries were in shambles. The United States was also nearly alone as a producer of oil. It is this later point that needs to be highlighted.

The United States used its vast oil reserves and coupled it with a highly trained industrial labor force and put it to work in its vast expanse of industrial capacity to re-build the rest of the world. It is this fact that is at the very center of our current monetary system some 60 years later. So I will start with my first analogy…

The US Corp could be seen as a huge company like General Motors. Following WWII US Corp was the only company left with the capacity to make things and it had the working capital and energy to do what it wanted. US Corp went out into the world and started to acquire other businesses. First was Japan Corp which US Corp had beaten into a pulp during the war. US Corp decided that it was in its own best interest to build Japan Corp back up but it needed to make sure that it never again could threaten US Corp the way it did in WWII.  Japan Corp used its own currency called the YEN and US Corp obviously used the Dollar. So to make this all work, US Corp had to make sure that the workers at Japan Corp didn’t feel like the last of their country was being taken from them. To keep them vested in the viability of their own country it was very important to let them keep their own currency and their own political structure, albeit greatly modified under the surface. We allowed Japan Corp to keep their figurehead CEO (the Emperor) and we installed a new board of directors (Democratic institutions). We linked the Bank of Japan to US Corp’s bank the Federal Reserve Bank through a new institution called the International Monetary Fund and the World Bank.

If we were to compare this to General Motors this would be like GM buying another company and bringing it under the umbrella of the GM brand. So in this case Japan is like Pontiac and they are given free rein to run their subsidiary the way they see fit, SO LONG as they abide by the parent companies rules.

This setup worked wonderfully and within a decade Japan Corp was back on its feet and was supplying cheap labor and products for US Corp and with every single barrel of oil Japan Corp bought on the international market it further linked them with our monetary system.  To keep the Japanese citizens from feeling that it was the US Corp in charge of everything we came up with the International Monetary Fund and the World Bank. Of course these institutions were funded initially by the United States and Great Britain and as such they were just pseudo US institutions. But it worked and the Japanese subsidiary of US Corp gladly bought oil and products from the United States in its own currency (the Yen) but it was linked via the IMF to the US Dollar. For you see US Corp linked everything that the industrial world needed to the US Dollar. All gold/oil/silver/food/etc were priced first in US Dollars and depending upon the relative “strength” of your currency to the US Dollar, this would dictate how much of your currency it would take to purchase a barrel of oil or an ounce of gold. This gave US Corp a huge advantage in the world as we produced almost everything anyways. We had most of the world’s oil supply and a very large portion of the food supply. We were the largest producer of the big complex things the world needed to rebuild. We allowed the smaller subsidiaries to produce the little stuff we needed or wanted. Japan Corp was great at the later, supplying us with small radios and other cool electronic gadgets.

US Corp built a company with dozens and dozens of subsidiaries, each one of them bringing something to the table either large or small. And as the world re-built, other countries wanted to get in on the good times and they voluntarily sold themselves to US Corp. Other countries were very reluctant to join our big happy company. Those countries fell into two groups. Either they were affiliated with Russia Corp or they wanted to stay neutral. But in a world that was moving fast towards globalization it became apparent that each country would have to choose a side lest they be shut out of the global market. For remember that the only way to gain access to US Corp’s vast array of markets and supplies is to be a part of the IMF/World Bank. It was the only way to convert your currency to other currencies (like the US Dollar to buy OIL!!).

I will end this history lesson there as I could get sucked in for hours explaining how US Corp and Russia Corp went to economic(and sometimes real) war with each other and how Russia Corp tried to have it both ways by linking themselves partially to the IMF to gain access to US Corps vast supplies and labor.

I will leave that to YOU to go out and study on your own as it is a story to rival any fictional book you have ever read. The important thing to take away here is that the International Monetary Fund and the World Bank are institutions that were created by the United States and Great Britain. It is a global system that allows countries using different currencies to exchange their goods and services with each other almost seamlessly. Remember also that the system was setup INITIALLY to allow US Corp to control the world’s most important supplies. Things like FOOD, OIL, COMMODITIES (gold,silver,etc) and the rest. At the time this system was created it was the United States that was supplying the lion’s share of these items. But as the decades have come and gone, these items have increasingly come from other parts of the world.  And a good portion of these countries are ones that were FORCED into our system either out of necessity or by direct manipulation of their country by forces outside their borders(meaning the US and the IMF).


This next part of our story is centered on how the US has maintained its spot at the top of the economic order even in the face of massive budget deficits and seemingly unending debt loads. The title of this section is called Confessions of an Economic Hit Man, as I give a nod to a book of the same name written by a man named John Perkins. Mr. Perkins is a trained economists and his specialty was international finance. His job was to go out into the world and sell foreign leaders on US Corp and to convince them to get on board with our system. Or more importantly, it was his job to make sure that they were forever caught up in our system and that they did not attempt to leave our company.

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German Pope, Italian Central Banker

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by Gary North
Posted November 24, 2011 

CONCLUSION: EUROPE IS IN BAD SHAPE. This is hedge fund manager Kyle Bass’s assessment of the situation in Europe. He stated this in a rousing interview on the BBC’s TV network. Here is the segment:

He made two crucial points – points that stock market investors are ignoring. First, over the last nine years, there has been an increase of world debt from $80 trillion to $210 trillion. These numbers are staggering. Global debt over the last nine years has grown at 12% per year, while GDP has grown at 4% per year.

While he did not verbally spell out the conclusion for the interviewer, it is this: when credit must grow by 12% per year in order to produce 4% GDP growth, at some point there will not be enough GDP to supply sufficient credit. It is time once again to quote economist Herb Stein: “When something cannot go on forever, it has a tendency to stop.”

Bass had a great metaphor: the PIIGS have “sailed into a zone of insolvency.” Second, he explained, the sovereign debts in Europe will be written down. There is no other solution. The airhead interviewer with the Oxbridge accent seemed to be doing a college-skit imitation of Emma Thompson. She challenged him. What about Germany? Can’t Germany continue to fund Europe’s “southern neighbors”? Germany has “the earning power.” (Note: this means German taxpayers.)

Bass responded instantly. First, the German court has determined that any further bailouts are unconstitutional. Second, Greece – and, by implication, the other “southern neighbors” – will spend every euro it borrows from Germany and then come back for more, threatening a default if its demands are not met – exactly what it has done so far. This goes on until the write-down takes place, which it will.

There are two ways of looking at this: the Bass way and the Bass-ackwards way. The airhead chose the latter.

He draws conclusions from the numbers. No one in the mainstream media and mainstream investment fund world seems to be willing to do this. They talk and invest as if the process can go on forever. Debts need not be repaid. This is ancient Keynesian dogma that goes back to the New Deal. “We owe it to ourselves.” On the contrary, specific borrowers owe it to specific creditors. At some point, the specific borrowers are going to default, leaving specific creditors with huge losses. How huge?


Charles Hugh Smith agrees with Bass. He says that there will have to be a write-down. By “write-down” he means write-off. He estimates the losses at three trillion euros. Someone will have to take the hit. The great political debate in Europe today is over who will take this hit, and how soon.

It will be investors. But, to forestall the day of reckoning, Europe’s politicians pretend that taxpayers’ credit lines can be used by superficially solvent Northern European governments in order to borrow more money from creditors in order to lend to the PIIGS’s governments, so that the PIIGS’s governments can continue to (1) delay real austerity measures, i.e., massive layoffs of government workers and massive cuts in welfare payments, and (2) make payments on what they owe to investors, mainly banks.

Smith admits that three trillion euros is a guess. Nobody knows how much bad sovereign debt there is, so we must start somewhere. In a world of $210 trillion worth of debt, his estimate seems reasonable to me.

Let’s start with the most basic fact about all this uncollectible, impaired, bad debt: every euro of debt is somebody else’s asset. Wipe out the debt and you wipe out the asset. That’s why there’s no willingness to accept the writedown of debt: somebody somewhere has to suck up 3 trillion euros of loss.

This is the source of Europe’s present policy of “kick the can,” or more accurately, “kick the can with press releases and summits.” If there were a pain-free solution, it would have been implemented long ago. There is no way Europe is going to “grow its way out of this debt.” How much of the eurozone’s “growth” was the result of rampant malinvestment and risky borrowing? More than anyone dares admit. It won’t take austerity to crash the euroland economy, all it will take is turning off the debt spigot.

Europe is facing the problem that Bass raised when he spoke of 12% per year increases of credit and 4% increases per year of GDP. There is no way to grow your way out of this. This is not just Europe’s problem. It is the world’s problem. But Europe is facing it now because the debts are coming due now. They must be rolled over. Creditors must agree to re-lend. But why should they?

The Establishment world of crony capitalism speaks of “re-structuring” the debt. What does this mean? Smith does not pull any punches.

“Restructuring” is a code word for writeoffs. Here, let me “restructure” the euro bond you bought at a 4% coupon yield. Now you’re going to get 2%, and you’re going to like it. Bang, your bond just lost half its market value, but everyone gets to keep it on the books at full value. Nice, until you have to sell it to raise cash. Oops, the euro has slipped in value so you lost more than 50%.

The banks keep the assets on the books at face value. The underlying value is down by at least 50% for Greek bonds. The European experts admit this. (Why the debt is worth that high a percentage is beyond me.) The Greeks are going to default, one way or another.

Who will take the hit? Smith writes: “There’s a fundamental truth that everyone has to understand: what the government spends, the public will pay for sooner or later, whether in taxes or inflation or having their debt defaulted on.” This is reality. But it’s not precise enough.


If there is hyperinflation – price inflation above 30% per year for a decade or more – the public that takes the hit will be almost everyone inside the eurocurrency zone. There will be almost universal hardship.

On the other hand, if monetary inflation ceases for more than a few months, there will be a depression. Big banks will fail. Their depositors will lose everything. The money supply will shrink. It will be 1930-38 all over again.

Central bankers do not allow such things. The European Central Bank will try to walk the tightrope, just as the national central banks in Europe did after World War II. The ECB will pursue boom-bust policies, refusing to capitulate either to a Great Depression or hyperinflation.

But how can it walk this tightrope? The losses will be huge for large banks. The politicians will try to transfer the cost of bailing out Europe’s banks to Germany. But the debts are too large.

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Gold & Whirlwind Crisis

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by Jim Willie CB
Posted Thursday, 17 November 2011

WHAT AN INCREDIBLE WHIRLWIND OF CRISIS from seven foul winds around the globe. Most emanate from Europe, which is far from its climax in crisis. Three steps will lead to full blown eruption, the first Italy with rising bond yields and a bank run, the second Spain with rising bond yields and admission that banks are far more insolvent than recognized, and third the failure of all three largest French banks as the principal swine creditor. In fact, a great split has occurred, as France has been cut off from the future world by Germany, which looks East to Russia and China. The Berlin leaders will not be needing French squires to carry their bags, but instead will watch as Paris becomes the appointed leader of the PIIGS. As the most exposed banks to Southern European sovereign debt, pig slop of immeasurable weight is tied around the laced Parisian necks. The common link across the Atlantic pond is derivative corruption.

The Europeans are doing their best to force feed a convenient but cockeyed definition of a debt default event. The Americans resort to old fashioned theft, calling it missing funds, blaming the crisis, while breaching the sacred segregated client fund directive. The crisis struck the US shores with the hidden JPMorgan chamber implosion and urgently needed theft, whose visible face is the MF Global heist and failure. My belief is that JPMorgan used its MFG patsy to anchor derivative trades, that just happened to be long sovereign debt in Europe. Nobody in his right mind, even a Corzine of GSax pedigree would place such large wrong trades unless obligated as a syndicate cog in the machinery. The big US banks will sit on the bankruptcy boards and decide the fate of victim accounts without client representation in a full scale insider exercise that makes a mockery of justice. That has been the American norm.

Witness the middle stage of the collapse of the COMEX, which has lost all trust as segregated client cash accounts vanished in a vast ongoing commingling campaign. One must conclude that JPMorgan must have really needed the money. The thought of a Madoff Redux comes to mind to the alert but weary. The MF Global vanished funds will eventually be measured over $3 billion. The actual Madoff pilfered funds totaled $150 billion, triple the more palatable figure often quoted. The locations of the missing funds have commonality, the ruling untouchable syndicate. Gold smells the destruction of the monetary and banking systems, aggravated by Western recession. Gold smells new application of debt to repair old failed debt structures, where central bankers chase their tails. Gold smells the vast reconstruction project for the giant Western banks, not too big to die of internal rot, only too big to let fail by a gavel.

The twisted bizarre attempt to control commodity prices by presiding over a series of negligent policies is coming to an end. The Western recession is too much for the insolvent banks to bear. The US banks have real estate debt rot, but the European banks have both real estate debt rot and PIIGS debt rot. In truth, the US banks share great risk from across the pond. The thrust of the French-based central bank over the pen of swine cannot be far from a formal announcement. Not quite what the highbrow French had in mind for leadership. Better to rule in clubmed pig slop than serve as lackey in the teutonic core.


The death of the monetary system has its main motive in the refusal of governments either to manage finances responsibly or to repay debt in the usual manner. They accumulate larger debts and plan the swindle of inflation in return. Their only viable approach, hardly a solution, is to inflate debt and thus to reduce its burden. Creditors feel betrayed, seek defensive measures, like to cut off credit and loan up quietly on gold, while lying about reserves. The creditors are not involved in the important decisions to debase the currency. Those decisions are made unilaterally by the debtors. A run on the US Treasury Bonds is occurring by angry foreign creditors. The USDollar is kept afloat by some secret corners. The pages of history are littered with examples of government debt default, but more often with the public paying for debt reduction in basic price inflation. The debts accumulated by many governments large and small cannot be repaid. History shows that tangible assets like Gold & Silver protect from the worst economic consequences. For the current financial crisis, only one pathway seems likely, although painful. The system cannot be remedied, only patched over. Vast inflation is the only politically viable method of repudiating these unmanageable obligations. Of key importance is the velocity of money in determining whether or not inflation turns into hyper-inflation, which requires final demand not to falter badly. Hyper-inflation requires sustained activity like an engine, which cannot stall. Higher price inflation is coming like night follows day, but probably not an extreme case. It will be painful though, since the cost structure will be the primary damage center. The US Consumer Price Inflation runs at 11.1% in the honest broker Shadow Govt Statistics calculation, which is painful enough.

The retreat is well along, the isolation to the hyper inflation machinery well along, the sovereign bond ruin well along. The Fed was hit with withdrawals of $83.3 billion on November 2nd, the largest withdrawals coming from its deposit accounts. This single day removal was the largest since February 2009, and not associated with quarterly tax payments. The withdrawals are being demanded by countries angered by USGovt policies, like China, Russia, Latin American, and other Asian players. It is only the beginning of a bloodletting. A run on USTBonds is in progress, covered up by Quantitative Easing and Operation Twist, programs given innocuous names but integral to the grand debasement process underway. The bond exodus is complemented nicely to significant removal of depository funds from the major banks in the ‘Move Your Money’ movement. Despite pleading by the big US banks for customers not to extract their money, impressively 650 thousand customers moved a total $4.5 billion dollars out of the big banks. The damage done is 10x to 20x, due to fractional banking practices. The funds went into smaller banks and credit unions in October.


The entire concept of Too Big to Fail is a hangman’s noose around the US banks and the banking system. The debate over cause or effect is curious. The related propaganda is obscene, if not comical. The smear campaign against gold will turn absurd, before the USDollar breaks permanently on the world stage, in the form of rejection in international commerce. It is called the Dollar Kill Switch, and it will be applied to the crude oil market. Conformity with the Too Big To Fail doctrine is synonymous with the path to systemic failure. Charles Hugh Smith sees the destructive force clearly. The absent liquidity of the biggest Western banks assures the systemic failure itself. Smith wrote, “The irony is that the propping up of a deeply intrinsically pathological and destructive financial system is not saving the economy, rather it is the reason the economy is imploding. The Big Lie technique of propaganda is to reverse the polarity of reality: we are told up is down until we believe it. We are told that liquidating the overhang of bad debt, leverage, and hedges would destroy the world as we know it. The truth is that keeping the zombie system from expiring and covering up the corruption with propaganda is actually destroying the world as we know it. Thus the collapse of the current financial system of central banks, pathological Wall Street, and insolvent banks would be the greatest possible good and the greatest possible positive for the global economy and its participants.”


The G-20 group actually suggested that Germany donate a block of gold reserves for European banking system stability, as in to fortify the stability fund. Obviously the Germans told them to get lost and mind their own business. The German nation has been the ox & yoke to pull the Southern European cart for a decade. They have had their fill of seeing savings drained! The emerging nations showed a mix of chuptzpah and ignorance. Look for the PIIGS nations instead to forfeit their central bank gold in the next several months, part of the Chinese discounted purchase of sovereign bonds. The Chinese are not stupid, careful to put hooks in the deal. In a bold stroke, the G-20 finance ministers actually demanded that German Gold reserves be used to backstop the EFSFund for bank bailouts. The backward irony of the story is that Germany will in no way whatsoever hand over Gold bullion to stabilize a system it finds revolting on a beneficial one-way street. In doing so, the G-20 Ministers actually legitimized Gold as the premier asset. The fund seeks EUR 1 trillion but in reality needs EUR 3 trillion, possibly supplied via leverage. Much confusion has circulated around the story, not fully confirmed. But Reuters cited that, “The Frankfurter Allgemeine Sonntagszeitung reported that Bundesbank reserves, including foreign currency and Gold, would be used to increase Germany’s contribution to the crisis fund, the European Financial Stability Facility (EFSF) by more than 15 billion Euros ($20 bn).”

The recipient of the alleged transfer would be the most insolvent of global hedge funds, the European Central Bank. One must suspect that no pledge was made, and a trial balloon was floated. It was promptly shot down. Germany has lost its appetite to make huge annual donations to support an unjustified standard of living for Southern Europe, which grossly lacks industry, a strong work ethic, and ability to collect taxes. Those nations abused the low Germanic interest rate, built housing bubbles, perpetuated young pension benefits, permit tax evasion, and face ruin. Germany will no longer sacrifice Euros at the foot of any PIIGS altar, plainly stated. Conclude that the EuroZone, the Euro Central Bank, and the European Financial Stability Facility are all dead broke and insolvent, and worse, have zero credibility in the capital markets. The real ugly controversy comes soon when collateral placed in return for grandiose aid will be lost, including some central bank gold bullion. The European Commission has no voice either, having pandered to the bankers.


The CME has advised that 1.42 million ounces of registered COMEX silver inventory is unavailable for delivery due to MF Global bankruptcy, as well as 16,645 registered ounces of gold also unavailable for delivery. That is a lot of bullion in breach of contract. The lawyers will be lined up very quickly to carve the metals exchanges into pieces. The COMEX is totally broken, unable to honor basic contracts, unable to deliver from committed legal contracts, unable to even protect client funds from commingling grabs. But during a period when investors cannot protect themselves, an ambush could easily come in the next week to push down the Gold price in the usual manner, via naked shorting. As the grandiose destinations become clear for vast new monetary creation, the Gold & Silver prices will run higher. The big immediate questions center on how much dithering the banker elite that run our governments will permit with malignant motive before the decisions are made, and how much economic deterioration will be permitted to contain commodity prices before the decisions are made. The destinations are bank bailouts for toxic sovereign bonds, recapitalization of the big Western banks, coverage of new USGovt debt, and economic stimulus. A few $trillion will be needed, as estimates by well-informed veterans mount like a stack of white papers. The economic damage is being done, even though the crude oil price has finally zipped above the $100 mark.

Ironically, as the orchestrated Libyan liberation war finished, the crude oil price has moved from $77 in early October to $102 today. Demand is not coming from economic growth, but from hedging against the ruined major currencies, all of them. Global QE is alive! With the gold market in turmoil from grand Asian raids, from absent COMEX inventory, from snatches of GLD inventory, from pilfered COMEX fringe accounts, from continued naked shorting, the safer bet with quicker payoff has been crude oil hedges. But Gold will have its day, and Silver will scoot through the opened phalanx as usual. The delay in reckoning is laden with frustration, but the day of $2000 is coming. It is something the bankers cannot stop. They are so busy kicking cans down the road, they do not see the Rotweillers and Dobermans sniffing their trails.


The biggest and most important danger signal for complete eruption of the Eropean financial crisis is the Italian sovereign bond. Their yield surpassed the 7% mark to sound great alarms, completing a Jackass forecast over the last several months. This level is the recognized crisis signal, the call to arms, the call to remove deposits, the call to demand collateralized loans. Their sovereign bond yield has zoomed upward in response to higher margin requirements. Italy is the next Greece, which was a crisis prelude. Italy scares the American and European central bankers witless. The Italian Govt Bond yield remained for 40 days above the 5% mark before it hit 6% two weeks ago. Its rise has accelerated, as the panic widens. The Italian yield suddenly surged past 7% with haste last week, reaching 7.5%, setting off shrill alarms. The Italian leadership is in question, its Prime Minister to be a victim. The 10-year yield went below 7% only because of heavy emergency buying by the Euro Central Bank, against their stated wishes. The Italian banks are far weaker than they reveal. The next PIIGS domino is soon to fall, for certain to take down Spanish Govt Bonds also. The new head of the EuroCB, the resplendent GSax pedigreed Mario Draghi, must cover the debt or watch the European Monetary Union crumble in a sea of fire. The central bank must make overt commitments of magnitude. If the crumble happens upon inaction, expect 20 Lehman events with numerous bank failures, starting with France. The conflagration would extend to London and New York.

The market is stating that Italian Govt repayment of rollover debt is in crisis mode, highly unlikely. Italy must roll over more than EUR 360 billion (=US$490 bn) of debt before end 2012. The borrowing costs for Italy have become highly burdensome, if not crippling and destructive. The debt rollover in upcoming auctions stands as the immediate event to watch. Lenders do not wish to hand money to Italy for servicing past debt interest, good money after bad. Even if budget reforms succeed, the austerity measures will constitute more poison pills that assure a faster economic recession from cut projects, more unemployment, and hostile response by the public, like worker strikes. Recall Jackass comments made a year ago. The prevailing opinion was that Italy had favorable debt ratios, like cumulative debt to GDP, like annual deficit to total budget. My objection was that ratios mattered little, when the required debt volume to finance was too large in a crisis filled bond market. My forecast was for Italy to erupt along with Spain eventually. That viewpoint has turned out to be correct.

Barclays has declared that Italy is finished kaput. The next Greek ruin on the plaza square is happening in Rome. The bond market is rejecting Italy loudly. Italy has dragged its feet for two months, rejecting warnings, refusing budget cuts, while its prime minister has given defiant messages loaded with denial. He even accused financial journalists of causing a run on their bonds. Time has run out on Italy. Watch for France to catch the viral contagion, being a major creditor. The Euro Central Bank is the only buyer of Italian Govt Bonds. They are the focus for action. When Italy erupts, it will spread to Spain first, and then quickly to France as its primary creditor. The nation of Spain is not in the news much at all, but it will be next year, just like Italy with the same type of problems, but compounded by a bigger housing bust. The research staff at Barclays in London has declared that Italy is formally finished and cooked, as they put it “Italy is now mathematically beyond the point of no return.” The Greek tragedy has finally struck Italy. Expect violence on the streets of Rome and other cities, an Italian tradition where innocuous brands of communism have splintered roots.


An invisible bank run is occurring in Italy. Their banks are trapped, attempting to de-leverage on a perilous tightrope forced by tightened bank reserve requirements. They have developed a big dependence on Euro Central Bank funds. The Credit Default Swap market indicates an expected Italian default. Next the bank deposits will exit. Italian banks have grown overly dependent on the European Central Bank. They borrowed EUR 111.3 billion (=US$152 bn) from the central bank at the end of October, up from EUR 104.7 billion in September and a smaller EUR 41.3 billion in June, as per Bank of Italy data. The five biggest lenders accounted for 61% of the country’s draw on ECB funds in September, double that of January. The banks include UniCredit, Intesa Sanpaolo, Banca Monte dei Paschi di Siena, Banco Popolare, and UBI Banca. These distressed banks must reduce their debt load in a highly dangerous bond environment marred by distrust and volatility. The decline in Italian Govt Bonds has rendered great damage to the private banks, reducing their reserve ratios and eroding loan collateral devoted to support regular business credit.

The Italian banks are trapped in the Italian sovereign debt securities. The austerity plans being forced will ensure a recession, thus even more losses for the banks. The run on Italian banks is just beginning, to become more visible in a couple months. The bond market expects some calamities. The debt insurance for individual banks demonstrates the extreme level of distress. European private banks are dumping sovereign bonds, hampering the already strained market. They are forced to comply with tougher newly enforced BIS reserves requirements. They are fighting to survive, but exposing the sovereign bonds as junk, and worse, dragged down by old real estate debts just like in the United States. The entire system is collapsing without potential remedy unless all major banks are liquidated, and that will never happen. They house the political power center, and the bond fraud laboratories. At the heart of the vulnerability is the fractional banking system itself. Insolvency arrives quickly and only worsens until a run occurs. Then comes rampant bank failures.


Even Citigroup chief economist Willem Buiter recognizes the extreme risk and dire nature of the situation in Europe. He said, “I think we have maybe a few months, it could be weeks, it could be days, before there is a material risk of a fundamentally unnecessary default by a country like Spain or Italy, which would be a financial catastrophe dragging the European banking system and North America with it. So [the central banks] they have to act now.” Look for enormous Dollar Swap Facility usage for covering PIIGS bonds, in particular from Italy and Spain. The French Govt Bonds will be next under attack, like in January. Their yields remain low, but they are rising, and the Bund spread is widening. My guess is that the swap facility is already being tapped in heavy volume, on days the Euro currency rises especially.


France introduced budget austerity, a surefire time bomb for the big banks that teeter in Paris. Nothing was learned from Greece, where recession is accelerating from the poison pills. The French banks bear the largest load for Italian Govt debt, more than double the German load and almost half the entire European load. France is tied with the lethal umbilical cord from Italy. The Dexia exposure to Greece and Italy has been detailed. German banks are not immune from big losses, nor immune from the financial crisis. Commerzbank suffered a big loss, typical of the German banking sector. With all the attention last month given to the big French banks, the weak links inside the German banking system are only recently coming to light. They are less but still sizeable. US banks are deeply exposed to European Govt debt default insurance. The risk is not offloaded, but rather shared and joined. The risks are rising astronomically for American banks, while large commitments are made, and partnerships are formed. The US press blithely reports a condition of near immunity of US banks from the financial crisis separated by an ocean. Great controversy lurks on insured debt.

If the regional recession does not pull France down, its banks will. They will succumb to horrendous Italian exposure. Notice the French banks have three times as much debt with Italian companies, versus Italian Govt debt. As the Italian Economy slides rapidly into recession, a considerable portion of the nearly $400 billion in total debt exposure will go rotten. One can see that Italy is Greece times seven. German banks are also on the hook for Italian sour grapes, but less than half the total.

The Spanish Govt Bond is the fuse that lights the Semex behind the French bank failures. Their bond yields surged past 6% as the contagion spreads. The bonds of Spain will endure similar pressures as Italy, deep scrutiny, and relegation to the Euro Central Bank outhouse, the major bagholder. The banking system in Spain operates on fairy tale reserves. The Spanish Economy is weighed down by 23% jobless rate. All PIIGS nations will be crushed by the crisis, no nation spared. Spain has officially entered the red zone as their sovereign bonds have been targeted. They have solved nothing, dealt with nothing, and downgraded no bank assets, preferring to live in a make believe world. While the Italian Govt Bond yield has relaxed toward levels below 7%, the Spanish Govt Bond yield has risen steadily since August from 5% to above 6% in an unrelenting march. It took five weeks to breach the 6% level, once the 5% level was breached. The Euro Central Bank is reported to be actively purchasing sovereign bond from both countries, to stem the crisis. Their efforts are futile, since private bank sales rise to supply the central bank at the window. After the official purchases, the private banks are highly reluctant to purchase anew, since that bond market has been badly tainted.


The Italian & Spanish Bovt Bonds are in big trouble, but the sleepy story is how France will soon join the PIIGS as the leader in the toxic sloppy pen where monetary paper feces spews openly. Some heavy damage is being quietly done on French bonds, where the banks hold much of their own national debt and the toxic Italian debt. Some claim it is game over with Italy on the ropes. My view is that the game is almost over, as the Italian debacle has spread quickly to Spain. But the main event in the recognized implosion is the sudden failure of all three of France’s big banks. When Societe Generale, BNP Paribas, and Credit Agricole all go bust in a sudden burst wave of insolvency, illiquidity, and recorded losses to their artificially lifted balance sheets, the game is truly over. Then and only then, the great reconstruction of the European banking system will begin, complete with $3 trillion in freshly printed money. The Gold market comprehends this fact, and anticipates it fully, with patience. The MF Global corrupted chaos has put a new log in the golden road.


The bank leaders have attempted to redefine debt default, as part of the bailout fund negotiations. This is the latest deeply corrupt practice, with some objection showed by the major debt rating agencies. Any loss of original debt security terms is a default, whether voluntary or blessed by the elite cartel. Expect court action and lawsuits in response. Another angle is being covered, whereby redenomination of debt in another currency is also declared not a default event. Great lengths are being taken, for a simple reason. A string of Credit Default Swap claims on debt default would expose the entire market as corrupted and under-funded by a wide margin to honor claims. With defaults, all the big banks would die in a flash. This is huge issue not addressed that invalidates an entire shadow-filled market. If sovereign bonds cannot be hedged effectively and predictably, the bond yields will rise fast from lack of demand. Watch out below for Italy. European banks will suffer losses without buffers that were expected to serve as hedges.


Coverage to the MF Global fraud, theft, and violation of the financial markets is full of intrigue and bold strokes. A sacred pledge has been broken against segregated accounts and their partitioned sanctity. Witness the second stage of the grand American fraud exposure. The first stage was the subprime mortgage fraud, with Lehman Brothers kill, JPMorgan assert grab and reload, followed by the TARP Fund dispersal, and the mortgage contract forgeries. The MF Global theft exposes the lack of integrity in the financial futures markets, and one step closer for the death of JPMorgan, which is plugging holes rather than permitting a COMEX default. Over a thousand gold contracts will not be delivered, a breach. Over ten thousand silver contracts will not be delivered, a breach. The final stage could feature a bank holiday and background heist of personal accounts. Some thought such forecasted warnings to be wild and reckless, but look at the pilfered futures cash accounts. Precedent has been set, warning given. Nothing is safe in the American system. Veteran traders should have known better, like Gerald Celente, whose accounts are locked up, cash and all. What a travesty and blight on the US system! Time is slim to remove money from the US system, whose banner is fraud.

MF Global is a more visible and flagrant breach and desecration than the Madoff Fund fraud and theft. The total missing Madoff funds was reported to be $50 billion, when the actual total was closer to $150 billion. The MF Global missing funds are reported to be $650 million, when in reality the total is closer to $2 to $3 billion. MF Global has located $658.8 million in customer funds in a custodial account at JPMorgan Chase, which contained a total of $2.2 billion as of October 31st, including both the MFG money and customer funds, pure commingling of funds. This is a smoking gun certain to go unpunished.

My belief is that JPMorgan stole the easily accessible funds placed too close to the action. Harbor doubts that CEO John Corzine will be indicted or serve prison time. The FBI is on the case. Their investigation will most likely be as effective as with Madoff, and recall they protected Goldman Sachs three years ago when a Russian man snatched the Unix software used by GSax for insider trading. It viewed incoming orders on the NYSE microseconds before the orders were executed. The FBI arrested the man, the illegal trading trail went cold, and the venerable firm continued doing God’s work. In my view, the MF Global case will render irreparable harm to the US financial system on the commodity side. Countless professional traders and their firms recognize the threat to segregated accounts and their sanctity. Trust is gone, and so is their money. No new money will enter those tables.

Safeguards did not merely fail, they were abused once more in a long list of fraud events. The Commodity Futures Trading Commission has failed on the job for the public, while doing an excellent job for the syndicate in power led by JPM and GSax. The next sham charade will be the big US banks serving on the creditor committees to oversee dispersal of funds that they were not able to steal already. JPMorgan is the agent for a $1.2 billion syndicated line of credit to MFG. It was named to the committee despite also having a $300 million secured loan against the MFG brokerage unit, a position pitted against other unsecured creditors in an obvious conflict of interest.

JPMorgan slapped a lien on MF Global assets in an audacious maneuver. A formal dance is in progress, where the public is amateur. Lack of cooperation has been given by MF Global so far. Witness a possible hidden derivatives meltdown, as the European implosion has a conduit to the United States. With inter-bank lending so scarce, many Wall Street banks extended heavy loans to the distressed European banks in the last couple months. The story is not told that way, only as a large financial firm failure run by an ex-Senator and ex-Governor, a fallen pillar in the financial crisis. What has happened could be a critical step toward the ruin of the COMEX itself, and its transition into a Cash & Carry operation for precious metals. The reins holding back Gold are slowly vanishing or being discarded.

After the collapse – Who will your neighbours be?

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by Brandon Smith
of Alt Market
Posted November 04, 2011

This article has been contributed by Brandon Smith of Alt Market, an organization that facilitates networking, local community action, and the exchange of knowledge and ideas and promotes decentralization, localism, and the de-globalization of human economic systems.

Dr. William Stockton celebrates yet another birthday surrounded by family and friends in the midst of a grand suburban paradise. The party is warm, and the evening is filled with joy and merriment. These people singing his praises, laughing and imbibing generous amounts of spirits, are neighbors he’s known for over 20 years. He understands them well, or at least, he thinks he does…

The good doctor, as his neighbors often point out with a jabbing chuckle, is a prepper; a brand of survivalist who participates in the day to day routine of mundane American life while using his spare time to safeguard against unforeseen disaster. His friends view this behavior as an amusing curiosity, an eccentric hobby, but none take it nearly as seriously as William does. It’s not that he is paranoid; far from it. In fact, William Stockton is a professional, a man of sense, and a man of family. He merely lives in an era of great potential danger, where nuclear war and societal collapse are anything but fantasy. Stockton takes these issues into account as an individual, and acts according to the severity of his environment. Much more than his neighbors, he represents legitimate rationality.

Unfortunately for the doctor, and for those who live around him, the days of wine and frosted cake are about to abruptly end as a Civil Defense emergency bulletin blares over the wire. The reality that today’s comforts could disappear in the blink of an eye sets into the minds of the frightened listeners. And soon, we begin to witness the TRUE character of those William once held dear.

This scenario might sound like a familiar consideration to many of us, but for now it remains the stuff of nighttime TV. So begins a rather prophetic and ingenious episode of The Twilight Zone entitled “The Shelter”…

The fascinating thing about “The Shelter” is that it is one of the few short stories showcased in The Twilight Zone (a science fiction program) which hasn’t a single element of science fiction within it. “The Shelter” is terrifying exactly because it is NOT a product of wild imagination, but a representation of social fact that cuts to the calcium rich bone of our culture, even 50 years after it aired on television.

The cold hard truth is, much of our country is completely unprepared for a crisis of any considerable proportion. While the 1950’s and 1960’s held the specter of immediate full scale nuclear war, and thus a highly persuasive incentive for preparedness, the new millennium has hardly been anything to sneeze at. Economic collapse is just as destructive to a nation as an atomic bomb, if not more so. The likelihood of social unrest and the long term implosion of our financial system is greater today than it has been in any other era of American history. So much so that even our currency may evaporate along with our standard of living. Those who prep today are acting in as much a logical fashion as those who built shelters during the height of the Cuban Missile Crisis.

The knee jerk conclusion here by skeptics of the prepper lifestyle will be that the bunker owning citizens of the “red scare” days wasted their time. That obviously, there was no nuclear holocaust, and all their careful planning was for naught. Or why not bring up the media generated hysteria of Y2K, which played on the public’s utter lack of general knowledge concerning computers and U.S. infrastructure to inspire a widespread prepping panic? Did that farce not prove the absurdity of the survivalist mentality?

The answer is no, not really…

The eventuality of collapse is not the issue. Though America today has zero room to maneuver as far as inflationary printing and debt based spending are concerned, and economic instability is inevitable according to the fundamentals regardless of any practical or impractical political measures that could be introduced, the crisis is not our focus. Our focus is, and always has been, independence and self reliance regardless of the circumstances. Through national prosperity, or national pain, the key to survival is to never make assumptions. To never count on your environment to remain hospitable. To keep catastrophe in mind, even if others around you do not.

One vital aspect of survival that often goes unaccounted for by even the most astute preppers, however, is the issue of community. When the last vestiges of normal society crumble, will you be surrounded by friends, or foes? The difference is not always apparent, as Rod Serling noted in the brilliant episode of the Twilight Zone above. The question then arises; how do we know who to work with, who to trust, and when to keep our mouths shut?  When the going gets brutal, who will have the guts to stand firm, who will run, and who will stab us right in the back if they get the chance?

Being a prepper for some years myself, and working with a myriad of character types, I have found that certain personality signals and quirks should be addressed in those who live around you, or those you plan to associate with. Certain kinds of people can be pure poison for any survivalist or any organization striving for practical solutions to collapse. Look at your neighbors and your associates carefully and with some objectivity. Do they fit any of the below profiles a little too well…?

The Lemming

This person lives life to the fullest, which by their definition essentially means working 9 to 5 in a job they despise with co-employees they hate, going home to watch reruns of The Apprentice while drinking away the pain of inadequacy, and bathing in the warm oily coconut butter glow of mainstream news before sinking into their soft feather bed of political ineptitude and dreaming sensible dreams of cult-like consumerist mayhem.

This kind of neighbor will likely freak at even the most non-invasive philosophies. Mention of voting for third party candidates (or Ron Paul) draws googly eyed expressions of disbelief, as if you just broke wind at their dinner table. Conversations of possible economic collapse inspire in them reactions of either complete dismissal along with skeptical cackling, or shrugged shoulders and passive solutions. They buy into anyone who happens to be in a position of petty authority, and would jump into a septic tank filled with rusty nails if someone in an expensive suit or a white coat told them to.

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Things that make you go hmmm…

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by Grant Williams
25 October 2011
With deference to European readers, I have removed (most of) the original baseball references. Please forgive, Grant!! – Aurick

“Everyone needs the ECB to step up to the plate. The ECB has no excuse not to act. In trying to keep its monetary virginity intact, the bank threatens to destroy the Euro Zone. If that happens, nobody will be able to profit from its virginity.”
– Paul de Grauwe

“Simple Math:

The total overall cap [of the ESM] is 500 billion Euros

160 billion Euros has been spent

340 billion Euros remains

340 billion Euros + zero Euros = 940 billion Euros“

– Mike Shedlock, on the latest European ‘Masterplan’ to merge the EFSF + ESM

“The trouble with quotes on the internet is that it’s difficult to determine whether or not they are genuine”
– Abraham Lincoln

Right now, the team comprising the ECB, EU and the various parliaments that make up that fractured and faltering alliance are sending, in baseball parlance, pitcher after pitcher to the mound (sometimes in groups of two or three) trying to combine for the perfect game that they NEED in order to escape the debt trap they have backed themselves into.

Being in a situation where you lose unless you can pull something off against odds of multiple-thousands to one and pitch a ‘perfect game’ is a ridiculous spot in which to find yourself, but as this month has rolled by, it has become ever-more apparent that that is precisely where the Brussels Eurocrats now find themselves. It appears as though, as the pressure has ratcheted up this week, we are now in the ninth inning.

Personally, my own belief (as regular readers are by now well aware) is that the very best the Eurocrats can hope for is to extend the game by an inning or two, but their arms are tired, their bullpen is empty and, at some point, we are going to see an absolute avalanche of runs scored against them as the whole thing finally topples under its own weight.

This past week has been nothing short of farcical as the tension has built towards a crescendo that seemed at first to be willfully engendered in order to generate just enough sense of impending crisis to enable a resolution to be forced through in a similar fashion to that which preceded Henry Paulson and Ben Bernanke’s now-infamous closed-doors fright-fest (hyphenation alert!) that led to the passing of the TARP in late 2008.

Obviously, any and all capitulation towards outright bailouts (or ‘QEU’) must at least be seen to be against the will of the Germans and that proviso goes a long way towards explaining the raft of headlines that have flooded the Reuters and Bloomberg screens of investors all around the world this week. We have seen misdirection, scaremongering, u-turns and abject incompetence as well as the kinds of ‘leaks’ that are, frankly, laughable – the prime example being the ‘leaked’ draft copy of the Euro Summit statement which was printed, in its entirety, in the Daily Telegraph on Thursday – coincidentally at the precise moment when things were starting to come unglued as it became clear that this Sunday’s Summit would NOT produce the magic bullet required.

The statement itself is priceless. It begins with a bit of back-slapping for the passing of the EFSF (after no less than six months of wrangling and an eleventh-hour drama in Slovakia):

The strategy we have put into place encompasses determined efforts to ensure fiscal consolidation as well as growth, support to countries in difficulty, and a strengthening of euro area governance. At our 21 July meeting we took a set of major decisions. The ratification by all 17 Member States of the euro area of the measures related to the EFSF significantly strengthen our capacity to react to the crisis.

The agreement on a strong legislative package within the EU structures on better economic governance represents another major achievement. The euro continues to rest on solid fundamentals

It then moves on to more familiar ground; an agreement to display their strong determination to fix things. Nothing concrete, of course, but they sure as hell are determined:

The crisis is, however, far from over, as shown by the volatility of sovereign and corporate debt markets. Further action is needed to restore confidence. That is why today we agree on additional measures reflecting our strong determination to do whatever is required to overcome the present difficulties.

The rest of the text, should you want to read it, is here, but allow me to summarise it through a few select phrases that will save you the trouble of doing so:

“blah, blah, blah… All Member States are determined, blah, blah, blah… We want to reiterate our determination, blah, blah, blah… We reaffirm clearly our unequivocal commitment that, blah, blah, blah… All other euro area Member States solemnly reaffirm their inflexible determination, blah, blah, blah… The euro area Heads of State or Government fully support this determination, blah, blah, blah… All tools available will be used in an effective way to ensure financial stability in the euro area, blah, blah, blah… We fully support the ECB, blah, blah, blah… “

See. I told you they were determined.

But, buried deep in the draft are (amazingly enough) some specific measures that will surely help solve the crisis:

• There will be regular Euro Summit meetings bringing together the Heads of State or govern­ment (HoSG) of the euro area and the President of the Commission. These meetings will take place at least twice a year

• The President of the Euro Summit will be designated by the HoSG of the euro area at the same time the European Council elects its President

• The President of the Euro summit will keep the non euro area Member States closely informed of the preparation and outcome of the Summits

• As is presently the case, the Eurogroup will ensure ever closer coordination of the economic policies and promoting financial stability.

• The President of the Euro Summit will be consulted on the Eurogroup work plan and may invite the President of the Eurogroup to convene a meeting of the Eurogroup, notably to prepare Euro Summits or to follow up on its orientations

• Work at the preparatory level will continue to be carried out by the Eurogroup Working Group (EWG)

• The EWG will be chaired by a full-time Brussels-based President. He/she should preferably also chair the Economic and Financial Committee

…and my personal favourite:

• Clear rules and mechanisms will be set up to improve communication and ensure more con­sistent messages.

It’s at this point that the non-Europeans amongst you are possibly finally beginning to get the joke that anybody caught in the tractor beam of ineptitude that is ‘Europe’ (and by ‘Europe’ I mean the bureaucratic construct rather than the land mass) has understood for years.


Millions of Euros spent on days of‘talks’ to come up with solutions that fail to address any REAL problems.

Don’t believe me?

Article 47 of the Common Fisheries Policy will ensure that every fish caught by an angler is notified to Brussels so that it can be counted against that countries quota. If you go out for a day’s fishing and catch a couple of cod or mackerel you will now be required to notify the authorities or face a heavy fine.

There are EU regulations on the greenness of the person on the pedestrian crossing lights.

There are 3 separate EU directives on the loudness of lawnmowers.

Regulation (EC) 2257/94 – a great read, by the way – stated that bananas must be ‘free from malformation or abnormal curvature of the fingers’. It also contained stipulations about ‘the grade, i.e. the measurement, in millimetres, of the thickness of a transverse section of the fruit between the lateral faces and the middle, perpendicularly to the longitudinal axis’ …

And then there are cucumbers:

Under regulation (EEC) No 1677/88 cucumbers are only allowed a bend of 10mm for every 10cm of length.

Do you think any of those were drawn up in ten minutes on a single piece of paper?

No. (Actually, in fairness to Europe, they don’t have a monopoly on silly legislation: there IS a law in Alaska that makes it illegal to push a moose out of a moving aircraft.)

The Brussels bureaucracy has always been something of a laughing stock amongst the people of Europe – since long before the final creation of the EU, in fact. Way back in 1955, with a European union freshly on the drawing board ten years after the end of WWII, Russell Bretherton, an English Civil Servant was dispatched to Brussels to inform European ministers what Britain thought of plans for an ambitious new European treaty. Upon arrival, he had these words of wisdom for those assembled:

“Gentlemen, you’re trying to negotiate something you will never be able to negotiate. If negotiated, it will not be ratified. And if ratified, it will not work”

Three years later, the Treaty of Rome was signed, establishing the European Economic Community and from that day to this, the degree of meddling, interference and sheer bureaucracy has increased year after year until we find ourselves here.

Europe is broken and the people charged with trying to fix it are clearly not up to the job. There are way too many vested interests, too many national peccadillos and way too many good, old-fashioned egos in play for it to come down to anything but a last-ditch solution when they are forced into it – and that solution WILL be the printing of money in some shape or form which will help to magically inflate the debt away. The other alternatives are either just too painful (default/ forgiveness) or plain unworkable (growth).

A look at a selection of newsflashes that hit screens this week shows just how ridiculous things have become as everybody involved in trying to sort out the mess that is Europe attempts to get themselves in front of a microphone in order to let the world know just how important they are. Some of these appearances, it would seem, are stage-managed for maximum effect on markets – others are simply self-important politicians who just can’t bring themselves to utter the words “no comment”:

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