by Bob chapmanWednesday, 2 November 2011
Source: GoldSeek.com
Smaller nations cannot be allowed to falsify their balance sheets and above all you cannot use one interest rate for all. Just about everything that has been done has been done incorrectly.
Unfortunately, the US and world economy hang in the balance as well. This euro, European and UK problem is not going to go away. By February it will again be front page news. There is an 80% chance that Greece will leave the euro in the next six months. If Ireland and Portugal do not receive equal treatment, followed by Belgium, Spain and Italy, then they will all be forced to leave the euro. If you think for one minute that these nations can stand more than a year or two of austerity you are mistaken. The whole approach is wrong. They should all be allowed to leave the euro. The only reason Greece has been temporarily saved is to keep Greece in the euro. These one-worlders cannot bear to see their dream of world government fail. It has already failed. Do you really think Germans are going to give up their sovereignty? Wait for the next German election. You are going to see a house cleaning in the Bundestag that will be staggering. The German people are outraged at what these politicians have done to them. If anything the move in the EU’s strongest economy will be away from further consolidation, not toward it.
Source: GoldSeek.com
The following are some snippets from the most recent issue of the International Forecaster. For the full 35 page issue, please see subscription information below.
US MARKETS
Those who believe the European crisis is over are mistaken. The dislocation will continue as their economies slow and political, social and economic events converge into further crisis.
The most glaring problem is the banks only taking a 50% loss on Greek bonds. The loss should have been 75% or even 80%. There is absolutely no way Greece can overcome that burden in a slowing European economy and an enraged population. They are still striking and demonstrating and they will continue even under a new government.
Some of the best economists in the world have been saying for almost as long as we have been saying that the weaker and smaller countries have to leave the euro at least temporarily. In our eyes that really means permanently. If Italy falls out it will take France with it and the euro edifice will fall. Very quickly it will be found that Greece cannot and will not recover. It is one thing to set recovery in motion in good times, but it is another to attempt to do so under austerity. These politicians in Europe have been self-serving. They are quickly going to find what they have done is not going to work. Greece should have never been saved, as we said from the beginning. They will need more and more money just to exist and you cannot have perpetual funding. Then you have the overriding social factor. It is simply impossible and once Greece goes, the other 5 will have to cut loose as well. Again, it will be called temporary, but their exists will be permanent. It simply cannot be any other way. Political hot air is not going to change anything. We have no details and bankers who refuse to face the music, and what is attempted to be achieved is impossible. The concept of a tighter union with a new constitution won’t work either. We can go back to 1991 when these issues came forth and we stated the Europeans are doing this backwards. You need a strong constitution first, only nations involved that can meet the criteria of public debt of 3% GDP.
Smaller nations cannot be allowed to falsify their balance sheets and above all you cannot use one interest rate for all. Just about everything that has been done has been done incorrectly.
Unfortunately, the US and world economy hang in the balance as well. This euro, European and UK problem is not going to go away. By February it will again be front page news. There is an 80% chance that Greece will leave the euro in the next six months. If Ireland and Portugal do not receive equal treatment, followed by Belgium, Spain and Italy, then they will all be forced to leave the euro. If you think for one minute that these nations can stand more than a year or two of austerity you are mistaken. The whole approach is wrong. They should all be allowed to leave the euro. The only reason Greece has been temporarily saved is to keep Greece in the euro. These one-worlders cannot bear to see their dream of world government fail. It has already failed. Do you really think Germans are going to give up their sovereignty? Wait for the next German election. You are going to see a house cleaning in the Bundestag that will be staggering. The German people are outraged at what these politicians have done to them. If anything the move in the EU’s strongest economy will be away from further consolidation, not toward it.
The magic number to keep the euro from collapsing over the next two years is $6 trillion that solvent European countries do not have, and using derivatives in place of cash is a prescription for disaster. Debt may be addressed, but the core economic and financial problems that were responsible for these problems are still not being addressed. That is a glaring lack of economic progress. Where is the capital needed for growth? Countries in the EU are going to have to increase money and credit and suffer the incumbent inflation; that is if they can even raise those funds and rollover old debt. Either that or China will lend $3 to $500 billion and we don’t think they are willing to do that. If China prints the money to lend, the value of the yuan will fall, the Chinese will take more market share and there will be more inflation. Their goods sold to Europe, the US and elsewhere will rise in cost as well. The Chinese will have to use cash euros or sell euro bonds. Such moves could be really upsetting to China. If aid comes it will be in much smaller amounts.
This past week the swaps association said the failure on 50% of Greek debt does not constitute failure, because it was voluntary, so the NYC legacy banks do not have to pay up on their derivative bet. That could all change, because Fitch says it does constitute default. We will now have to await the decisions of S&P and Moody’s.
What Europe has done is pull a page from US bailouts, which reduce debt starting in a few years, which would extend over 10 or 20 years. It reminds us of the two sets of books banks are currently keeping. They intend to write off bad debt over 50 years, like it really didn’t exist. This plan allows further current increases in debt over the short term. That is no solution at all. Again, it only throws the debt and service into a future that could include deflationary depression. Recovery is not a given.
Fitch has really opened a large can of worms in calling a 50% debt default a payable derivative event. We are talking about hundreds of billions of CD’s, credit default swaps OTC derivatives, which just happens to be an unregulated market. Our view is Fitch is correct and the ISDA, the derivatives information agency is wrong. What isn’t made an issue of is that banks have been asked to raise $150 billion they are offside on this issue. We projected this number long ago. The official number is $3.7 billion, which is laughable. About a month ago the players admitted to $75 billion, so we are making progress toward truth and reality. We wonder what the French bankers are saying, who bought the insurance? If NYC banks do not pay off the ECB will have to create the $150 billion and lend it to the banks in France, so they can survive. Could this be a renege? We think so, and that would ultimately allow citizens of the EU to pay the debt. These bankers are crafty buggers they are.
We also question why banks are writing off 50% of their debt and the sovereigns are not. Isn’t this strange? Why are they not writing off 50%? Could it be that if they did they would be insolvent? Could it be to deceive their taxpaying citizens and pop the question several years from now? Could this be they are just trying to extend the timeline into the future? Time has a way of revealing everything. Incidentally, none of that Greek debt will probably ever be paid off. It should also be noted that of the $140 billion lent by the IMF, US taxpayers are on the hook for about 30%, or $42 billion. We are sure that will make Americans very happy.
The difference between $516 billion allocated by EU members, half of which comes from Germany, and $1.4 trillion will come from the sale of bonds by the EFSF, the European Financial Stabilization Fund. The question is who is going to buy this tranche of some $900 billion in bonds? Nations will receive greater taxes from a phantom recovery and buy the bonds. How can this be when those economies barely have even GDP growth? All this in the midst of austerity. We do not get it. We must be missing something. Does Italy really believe that raising the retirement age from 65 to 67 is going to bring any real immediate relief? As you can see the case is terminal...
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