“The E.C.B. has a fire hose — its ability to print money. But the bank is refusing to train it on the euro zone’s debt crisis.”
Wrote Jack Ewing, New York Times, November, 2011
“Why not? According to the November 28th Wall Street Journal, ‘The ECB has long worried that buying government bonds in big enough amounts to bring down countries' borrowing costs would make it easier for national politicians to delay the budget austerity and economic overhauls that are needed.’
As with the manufactured debt ceiling crisis in the United States, the E.C.B. is withholding relief in order to extort austerity measures from member governments—and the threat seems to be working. The same authors write:
‘Euro-zone leaders are negotiating a potentially groundbreaking fiscal pact… [that] would make budget discipline legally binding and enforceable by European authorities…’
The Eurozone appears to be in the process of being ‘structurally readjusted’ – the same process imposed earlier by the IMF on Third World countries. Structural demands routinely include harsh austerity measures, government cutbacks, privatization, and the disempowerment of national central banks, so that there is no national entity capable of creating and controlling the money supply on behalf of the people. The latter result has officially been achieved in the Eurozone...
Banks can borrow from the E.C.B. at 1.25%, the minimum rate available for banks. Member governments, on the other hand, must put themselves at the mercy of the markets, which can squeeze them for ‘whatever the market will bear’ —in Italy’s case, 6.5%.” (emphasis added)
“THE E.C.B. FIDDLES WHILE ROME BURNS”
Ellen Brown, webofdebt.com, 11/28/11 via lemetropolecafe.com
The mega-bankers have stuck themselves, and thus investors and the citizens of the countries in which they do business, between a rock and a hard place. That position creates both threats and opportunities for investors, as we explain.
Not only just the PIIGS countries, but also France, and ultimately the U.K. and USA can not realistically pay the debts they have accumulated, much less the downstream unfunded liabilities ($120 trillion in the U.S. e.g. for Social Security and Medicare et al.).
If the mega-banks take a haircut sufficient to render the aforementioned sovereign nations solvent, several of those banks will fold. If not, sovereigns, governments, and economies will fail and begin to fall as Greece already has, with others following close behind.
As we have earlier stated, the most-likely non-solution which will be implemented is that The ECB, Fed, and other central banks will engage in additional Q.E. and (repudiating earlier treaty and other commitments) and will intensify their monetization of sovereign and other toxic debt.
And indeed six central banks did implement global Q.E. earlier this week (November 30) by reducing the rates on liquidity swaps (the cost of temporary dollar loans to banks) by half a percent.
Indeed, Fed Vice-Chairman Janet Yellen recently hinted at such.
However in weighing the impact of this and other recent mega-banker moves, consider the fundamental realities as we move into 2012:
Reality 1: Liquidity facilitation (such as November 30 global Q.E.) and debt monetization will generate increasingly massive monetary inflation, and thus worsen price inflation in the mid and long term (short term, the markets love the financial sugar high).
The underlying Eurozone realities have not changed. In 2012 alone, Euro-banks will have to raise over $660 billion to fund maturing debt.
But rates have been skyrocketing. The recent yield on Spanish 3-month debt was above the yield on Greek 3-month debt. And on December 1, 2011 one day after the central banks global Q.E. Spanish bond yields rose with the bond rate on maturing April, 2015s yielding 5.2%, up from 3.64% in October.
And Belgium has been downgraded and French debt yields are launching skyward.
Reality 2: Thus the global Q.E. provides only a temporary fix because the sovereign nations’ problems are solvency problems, NOT liquidity problems.
Liquidity facilitation (via global Q.E.) merely allows piling more debt on top of already unpayable debt.
Reality 3: Excessive debt service requirements stifle eurozone economic growth and constitute a tax on taxpayers around the world.
“The Real Reason Eurozone Countries Are Drowning in Debt
Why should banks be able to borrow at 1.25% from the E.C.B.’s unlimited fountain of euros, while the tap is closed for governments? The conventional argument is that for governments to borrow money created by their own central banks would be “inflationary.” But private banks create the money they lend just as government-owned central banks do.
The burgeoning debts of the Eurozone countries are being blamed on their large welfare states, but these social systems were set up before the 1970s, when European governments had very little national debt. Their national debts shot up, not because they spent on social services, but because they switched bankers. Before the 1970s, European governments borrowed from their own central banks. The money was effectively interest-free, since they owned the banks and got the profits back as dividends. After the European Monetary Union was established, member countries had to borrow from private banks at interest—often substantial interest.
…for France, at least, thetotal sum paid in interest since the 1970s appears to be as great as the French federal debt itself…
The figures are nearly as bad for Canada, and they may actually be worse for the United States. The Federal Reserve’s website lists the sums paid in interest on the U.S. federal debt for the last 24 years. During that period, taxpayers paid a total of $8.2 trillion in interest. That’s more than half the total $15 trillion debt, in just 24 years… That means our entire federal debt could have been avoided if we had been borrowing from our own government-owned central bank all along, effectively interest-free. And that is probably true for other countries as well.” (emphasis added)
“THE E.C.B. FIDDLES WHILE ROME BURNS”
Ellen Brown, webofdebt.com, 11/28/11
And, we should add, central banks like the private for-profit fed print the money they loan to taxpayers (with interest) virtually for free.
But the economic health-stifling effects of debt saturation are felt worldwide.
Reality 4: And the historic correlation between EU and U.S. GDP growth rate is 86%.
Thus mid to long-term the prospective eurozone low to negative growth will further damper the U.S. economy, notwithstanding the latest global Q.E. move.
Reality 5: And if U.S. growth continues to decline (it is now a negative 2.89% per Shadowstats.com**) because of high inflation and Eurozone doldrums, Chinese and other major exporters will suffer, which will exacerbate China’s economic slowdown, already suffering from an overbuilt real estate sector and excessive debt.
Reality 6: The November 30, 2011 global Q.E. action thus greatly increased the likelihood of hyperinflation, and more systemic crises.
Reality 7: In sum, Eurozone debt and economic problems are not limited to PIIGS, and have not been “solved” by the C.B.’s Nov. 30 global Q.E. action.
Bob Chapman lays out one possible solution.
“In Europe each time a new player is presented we find he is a Goldman Sachs’ alumnus. Recent entries are Mario Monti “appointed” PM of Italy, Lucas Papademas “appointed” PM of Greece and Mario Dragahi “appointed” President of the European Central Bank. The banks blatantly control governments and agencies presenting us with an oligarchy, which controls most of the nations on the planet. In America politicians are bought and paid for. In Europe there is a different mind set, a shared worldview of bureaucrats, technocrats, politicians and the elite bankers of world government and domination. What has happened in this process is that Goldman Sachs, JPMorgan Chase and other mega-banking has retained power for decades. They control all the players in the field, so the outcome is always in their favor. The bankers and others in turn are paid via billions of dollars in bonuses. Banks are now bank holding companies having become that to avoid failure as brokerage firms. That is the case in the US, UK and Europe…
At last we heard from the US government, US bank exposure was $670 billion, mostly in credit default swaps… In Europe there is no question that all European banks will have to be recapitalized by the countries in which they do business. In fact, it has already begun, just as it did in the US three years ago…
The weaker states have to be cut loose and the euro has to be phased out. Article 123 of the EU Treaty, … (prohibits) monetary financing or central bank funding of government… Monetary inflation is the direct result of bailout and purging the system is the only solution for the long-term…
Monetary financing only extends the problem; it is illegal and destroys the credibility and trust in national institutions.”
Bob Chapman, The International Forecaster, 11/26/11
Reality 8: Like it or not the interconnectedness of the (increasingly) globalized financial system force us to continue to monitor the Eurozone several crises. [Investors and indeed citizens of major nations would be far better off had we not moved away from an economic and financial system of sovereign nations engaging in international commerce, rather than today’s globalizing one. (See Deepcaster’s articles regarding The Cartel’s ‘End Game’ in the ‘Articles by Deepcaster’ cache at www.deepcaster.com.)]
French banks in particular have substantial exposure to Eurozone sovereign debt.
But the French idea of selling ECB bonds to buy Eurozone debt has been killed by Germany, for now.
And the Germans themselves were unable to sell all their debt last auction time.
Consequence: The mega-bankers will have to take much bigger haircuts than they want, or can tolerate…
Unless they can successfully use these manufactured crises to continue to “disempower national central banks so there is no national entity capable of creating and controlling the money supply on behalf of the people”.
Reality 9: The Eurozone financial problems have not been fixed; thus a series of major bank collapses there will likely intensify in 2012, Dexia of Belgium was but the first.
These collapses will have a worldwide ripple effect.
Reality 10: Banks runs have already begun and will intensify in 2012. Advice: carefully assess the strengths/weaknesses of your depository institutions.
Italian government leadership turnover and mega-debts have been much in the news lately. And there has been no sustainable resolution to Italy’s problems.
But investors should continue to pay equal or greater attention should be paid to Spain with 23% “official” unemployment and skyrocketing borrowing costs – 5.11% on 3-month treasury bills recently!!
Reality 11: monitoring spanish borrowing costs and economy for clues regarding what will happen to the Euro and Eurozone, is essential. Spain is the too-big-to-fail “elephant” of the PIIGS.
But there is another ominous sign.
Reality 12: Bond investors are still selling sovereign debt and not just of the PIIGS. France’s borrowing cost is rising as well, with the UK, and eventually the USA following along too.
In sum, it is important to evaluate the euphoria which gripped the equities markets this past Monday, Nov. 28 with the Dow up over 300 points on positive “news.”
Let’s just consider whether that euphoria was justified by examining the ostensible causes of that equities surge as described by Aaron Task of the Daily Ticker (Yahoo Finance) in his excellent article entitled “Euro Euphoria: Stocks Surge on Latest Bailout Plans, Proposals and Rumors” on 11/28/11:
- “Rumors, since denied, of an IMF bailout for Italy.”
We think an eventual ECB bailout of Italy is more likely than an IMF one (and despite public proclamations to the contrary). global Q.E. is only a temporary fix.
- “New guidelines, to be discussed at a meeting of finance ministers later this week, allowing the European Financial Stability Fund to insure up to 30% of debt offerings by struggling nations.”
Is such a proposal anything but a laugher? The effect of lowered (via insurance) interest rates on the other 70% of the uninsured portion would be minimal.
- “Weekend comments by German Finance Minister Wolfgang Schaeuble urging fast-track treaty changes to tighten budget discipline and fiscal unity among EU members.”
Are the Germans, Finns, and French really going to agree to shoulder the budgetary and debt burdens of the other Eurozone members? …We doubt it.
- “Rising expectations the Fed will embark on another round of quantitative easing, focused on buying mortgage-backed securities, as part of a global effort by central bankers to ease policy.”
Yes, another round of Fed quantitative easing is highly likely, as Fed Vice-Chairman Yellen recently suggested. Indeed we expect The Fed to launch another Q.E. in 2012 to follow the global one just launched.
For Investors, we recommend the following to capitalize on Opportunities and Surmount Threats:
I. Buy essential tangible assets on the dips. And we specifically recommend gold, silver and agricultural commodities.
But the timing of gold and silver purchases is especially important because these precious metals are subject to ongoing price suppression attacks by a Fed-led Cartel (see below*) of central bankers and their allies. Tracking these interventionals has facilitated Deepcaster’s making four profitable (buy and) sell recommendations in the third quarter 2011 alone, specifically we recommend:
- Buying on dips, coupled with a willingness to tolerate great price volatility
- The core holdings of ones’ precious metals position are best held in one particular form (see our precious metal recommendations) of the physical metals, in personal possession
- that well managed reasonably priced miners with substantial reserves be bought on dips, and, if one is a trader, a portion sold near interim highs
- that a portion of one’s holdings be in a dividend paying precious metals fund such as one which we have recommended, and
- regarding silver, since it is also an industrial metal, it is especially vulnerable to slowdown in economic activity and (especially for the shares) takedowns in the equities markets. But given the increasingly tight physical market, it is a “buy” on major dips.
- Another important guideline is that financial and economic conditions are such that we do not recommend shorting gold and silver, even in advance of a likely Cartel* takedown attempt, unless one is a highly experienced trader
- Consider our hi-yield portfolio (www.deepcaster.com), aimed at achieving a total return (gain+yield) in excess of real inflation of 11.12% per Shadowstats.com**.
II. Go local when possible. A quick look at the XLF shows the present and prospective vulnerability of the banking sector. Keep assets outside of global banking sector when at all possible.
III. Make provisions for your personal safety. As crises deepen social chaos is likely. Just a decade ago the Argentinean financial crises resulted in power outages, termination of police and other services, gas stations closures, foodless grocery stores, and bank and retirement check failures. It can happen where you live too are.
Best regards,
Deepcaster
December 1, 2011
Note 1: *We encourage those who doubt the scope and power of overt and covert interventions by a Fed-led Cartel of key central bankers and favored financial institutions to read Deepcaster’s December, 2009, special alert containing a summary overview of intervention entitled “Forecasts and December, 2009 Special Alert: Profiting From The Cartel’s Dark Interventions - III” and Deepcaster’s July, 2010 letter entitled "Profit from a Weakening Cartel; Buy Reco; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & T-Bonds" in the ‘Alerts Cache’ and ‘Latest Letter’ Cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org, including testimony before the CFTC, for information on precious metals price manipulation. Virtually all of the evidence for intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “interventionals.” Attention to the interventionals facilitated Deepcaster’s recommending five short positions prior to the Fall, 2008 Market Crash all of which were subsequently liquidated profitably.
Note 2: **Shadowstats.com calculates Key Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest. Consider
Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)
Annual U.S. Consumer Price Inflation reported November 16, 2011
3.53% / 11.12% (annualized October, 2011 Rate)
U.S. Unemployment reported November 4, 2011
9.0% / 22.9%
U.S. GDP Annual Growth/Decline reported November 22, 2011
1.51% / -2.89%
U.S. M3 reported November 10, 2011 (Month of October, Y.O.Y.)
No Official Report / 2.62%
