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February 13th, 2014
This morning Reuters obtained a leaked proposal disclosing that European Union officials are looking for new and innovative ways to fund their immense debt levels. As noted by Zero Hedge, they’re no longer turning exclusively to central bankers to simply print more money as needed. Because last year’s bank bail-in forcing the confiscation of funds from average depositors in Cyprus worked so well, EU regulators and bankers have determined that they’ll use a similar method to fund their future endeavors.
In a nutshell, and in Reuters’ own words, “the savings of the European Union’s 500 million citizens could be used to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis, an EU document says.”
The solution? “The Commission will ask the bloc’s insurance watchdog in the second half of this year for advice on a possible draft law “to mobilize more personal pension savings for long-term financing”, the document said.”
Mobilize, once again, is a more palatable word than, say, confiscate.
This is what happens when governments run out of money.
But if you think this is limited to just Europe, then consider the words of President Barack Obama in his recent State of the Union address.
For all intents and purposes, a similar groundwork is being laid right here in America.
They’ve already taken over the health care industry… why not nationalize our retirement savings while they’re at it?
This is basically the offer that the President of the United States floated last night.
And like an unctuously overgeled used car salesman, he actually pitched Americans on loaning their retirement savings to the US government with a straight face, guaranteeing “a decent return with no risk of losing what you put in. . .”
This is his new “MyRA” program. And the aim is simple– dupe unwitting Americans to plow their retirement savings into the US government’s shrinking coffers.
We’ve been talking about this for years. I have personally written since 2009 that the US government would one day push US citizens into the ‘safety and security’ of US Treasuries.
Back in 2009, almost everyone else thought I was nuts for even suggesting something so sacrilegious about the US government and financial system.
But the day has arrived. And POTUS stated almost VERBATIM what I have been writing for years.
The government is flat broke.Even by their own assessment, the US government’s “net worth” is NEGATIVE 16 trillion. That’s as of the end of 2012 (the 2013 numbers aren’t out yet). But the trend is actually worsening.
In 2009, the government’s net worth was negative $11.45 trillion. By 2010, it had dropped to minus $13.47 trillion. By 2011, minus $14.78 trillion. And by 2012, minus $16.1 trillion.
Here’s the thing: according to the IRS, there is well over $5 trillion in US individual retirement accounts. For a government as bankrupt as Uncle Sam is, $5 trillion is irresistible.
They need that money. They need YOUR money. And this MyRA program is the critical first step to corralling your hard earned retirement funds.
At our event here in Chile last year, Jim Rogers nailed this right on the head when he and Ron Paul told our audience that the government would try to take your retirement funds:
I don’t know how much more clear I can be: this is happening. This is exactly what bankrupt governments do. And it’s time to give serious, serious consideration to shipping your retirement funds overseas before they take yours.
As former Congressman Ron Paul notes, the government will stop at nothing.
“They’ll use force and they’ll use intimidation and they’ll use guns, because you can’t challenge the State and you can’t challenge the State’s so-called right to control the money,” warns Paul. “It’s already indicated that they will confiscate funds and they will [confiscate] pension funds.”
This didn’t just happen over night. The move to make this reality has been going on for quite some time. The first time it was mentioned publicly in any official capacity was at a 2010 Congressional hearing:
Democrats in the Senate on Thursday held a recess hearing covering a taxpayer bailout of union pensions and a plan to seize private 401(k) plans to more “fairly” distribute taxpayer-funded pensions to everyone.
Sen. Tom Harkin (D-Iowa), Chairman of the Health, Education, Labor and Pensions (HELP) Committee heard from hand-picked witnesses advocating the infamous “Guaranteed Retirement Account” (GRA) authored by Theresa Guilarducci.
In a nutshell, under the GRA system government would seize private 401(k) accounts, setting up an additional 5% mandatory payroll tax to dole out a “fair” pension to everyone using that confiscated money coupled with the mandated contributions. This would, of course, be a sister government ponzi scheme working in tandem with Social Security, the primary purpose being to give big government politicians additional taxpayer funds to raid to pay for their out-of-control spending.
You’d think that such an idea would be immediately dismissed by the American public, but it has only gained steam since, as evidenced by a 2012 hearing held at the U.S. Labor Department:
The hearing, held in the Labor Department’s main auditorium, was monitored by NSC staff and featured a line up of left-wing activists including one representative of the AFL-CIO who advocated for more government regulation over private retirement accounts and even the establishment of government-sponsored annuities that would take the place of 401k plans.
“This hearing was set up to explore why Americans are not saving as much for their retirement as they could,” explains National Seniors Council National Director Robert Crone, “However, it is clear that this is the first step towards a government takeover. It feels just like the beginning of the debate over health care and we all know how that ended up.”
…Such “reforms” would effectively end private retirement accounts in America, Crone warns.
A few years ago the government of the United States of America nationalized nearly 1/6th of our economy when they took over the health care system with forced mandates. In the process they essentially took control of $1.6 trillion in yearly industry revenues.
But that’s nothing compared to private savings. The total amount of retirement assets in America, including 401k, IRA and savings accounts is around $21 trillion. With our national debt coincidentally approaching the same, the government sees big money and potentially a way out of our country’s fiscal disaster.
This will start voluntarily with the MyRA and other state-sponsored programs. But when not enough Americans are making it their patriotic duty to turn over their funds to their government, they’ll mandate compliance with the stroke of a pen just as they did with thePatient Affordable Care Act.
And just like Obamacare it will be enforced by the barrel of a gun. Failure to comply will mean confiscation without recourse and prison time.
All they need now is a trigger.
And that trigger will likely come in the form of another stock market collapse. Wipe out Americans’ in a stock market crash and scare the heck out of them with more economic bad news, and millions of our countrymen will be all too willing to hand it over to Uncle Sam. Panic is a powerful motivator and what better way to get people on board than by threatening them with squalor and destitution in their old age if they don’t go along with it?
Government officials have been actively working to make this a reality for years. The Europeans are doing the same.
You can put your head in the sand or cover your ears and pretend this is not happening, but that won’t change the outcome.
They will take everything they can get their hands on.
At the heart of the European debt crisis is the euro, the currency that ties together 17 countries in an intimate manner. So when one country teeters on the brink of financial collapse, the entire continent is at risk. The following excellent mini-documentary visually explains how such a flawed system came to be… and what’s next?
‘Breathtaking’ Corruption in the EU
A recent article at the BBC discusses the findings of a report by EU Home Affairs commissioner Cecilia Malmstroem on corruption in the EU. According to the report, the cost of corruption in the EU amounts to €120 billion annually. We would submit that it is likely far more than that (in fact, even Ms. Malmstroem herself concurs with this assessment). This is of course what one gets when one installs vast, byzantine bureaucracies and issues a veritable flood of rules and regulations every year. More and more people are needed to administer this unwieldy nightmare of red tape, and naturally the quality of the hires declines over time due to the sheer numbers required.
Moreover, many small to medium sized businesses would probably not be able to survive if they didn’t occasionally bribe officials. Big business considers bribes a perfectly normal cost of business anyway, especially when the business concerned involves milking tax cows. As you will see further below, the defense business – or better the war racket – is especially prone to corruption. Tax payers of course end up paying every cent. Another sector that is apparently subject to widespread corruption is health care – which should be no surprise, since health care provision is an almost fully socialistic enterprise in Europe. Bribes may well mean the difference between life and death in some instances. You will probably also not be overly surprised to learn that there was VAT fraud amounting to €5 billion in the bizarre and totally ineffective and useless ‘carbon credits’ market, which has turned into a boondoggle of amazing proportions. There’s simply no other way of making a mint in that market we suppose. From the BBC:
“The extent of corruption in Europe is “breathtaking” and it costs the EU economy at least 120bn euros (£99bn) annually, the European Commission says. EU Home Affairs Commissioner Cecilia Malmstroem has presented a full report on the problem.
She said the true cost of corruption was “probably much higher” than 120bn. Three-quarters of Europeans surveyed for the Commission study said that corruption was widespread, and more than half said the level had increased.
“The extent of the problem in Europe is breathtaking, although Sweden is among the countries with the least problems,” Ms Malmstroem wrote in Sweden’s Goeteborgs-Posten daily. The cost to the EU economy is equivalent to the bloc’s annual budget. For the report the Commission studied corruption in all 28 EU member states. The Commission says it is the first time it has done such a survey.
National governments, rather than EU institutions, are chiefly responsible for fighting corruption in the EU.
In some countries there was a relatively high number reporting personal experience of bribery. In Croatia, the Czech Republic, Lithuania, Bulgaria, Romania and Greece, between 6% and 29% of respondents said they had been asked for a bribe, or had been expected to pay one, in the past 12 months. There were also high levels of bribery in Poland (15%), Slovakia (14%) and Hungary (13%), where the most prevalent instances were in healthcare.
Last year Europol director Rob Wainwright said VAT fraud in the carbon credits market had cost the EU about 5bn euros.”
And that is merely what they actually know about. Remember, there are know unknowns and unknown unknowns here as well, and they probably dwarf what is actually known. One gets an inkling of how big the problem may really be when considering the case of Greece.
The EU corruption map according to the official report – via BBC.
Bribes Exceeding Greek Official’s Memory Storage Capacity
Greece is of course a special case in terms of official corruption. If you ever wondered how the country could go bankrupt in such short order after joining the euro zone, wonder no longer. Here are a few excerpts from a recent article in the NYTabout a lower level official in the defense ministry who received so many bribes that he cannot even remember them all anymore. The amounts involved are astonishing:
“When Antonis Kantas, a deputy in the Defense Ministry here, spoke up against the purchase of expensive German-made tanks in 2001, a representative of the tank’s manufacturer stopped by his office to leave a satchel on his sofa. It contained 600,000 euros ($814,000).
Other arms manufacturers eager to make deals came by, too, some guiding him through the ins and outs of international banking and then paying him off with deposits to his overseas accounts.
At the time, Mr. Kantas, a wiry former military officer, did not actually have the authority to decide much of anything on his own. But corruption was so rampant inside the Greek equivalent of the Pentagon that even a man of his relatively modest rank, he testified recently, was able to amass nearly $19 million in just five years on the job.”
One certainly wonders what more powerful officials were able to skim off. Unfortunately, corruption is so widespread and reportedly involves the highest echelons of the bureaucracy and the body politic in Greece, so that one must expect that we will never find out. No wonder there is a lot of tax evasion in Greece: who wants to hand over his hard earned money to such a gang of thieves? It is like paying off the mafia.
Meanwhile, the companies paying the bribes are of course just as guilty, and many of them come from countries that are themselves ranked relatively low on the corruption scale – e.g. Germany and Sweden. It seems to be an ‘opportunity makes thieves’ type situation.
“Never before has an official opened such a wide window on the eye-popping system of payoffs at work inside a Greek government ministry. At various points, Mr. Kantas, who returned to testify again last week, told prosecutors he had taken so many bribes he could not possibly remember the details.
Mr. Kantas’s testimony, if accurate, illustrates how arms makers from Germany, France, Sweden and Russia passed out bribes liberally, often through Greek representatives, to sell the government weaponry that it could ill afford and that experts say was in many cases overpriced and subpar.
The 600,000 euros, for instance, bought Mr. Kantas’s silence on the tanks, which were deemed of little value in any wars Greece might fight, according to Constantinos P. Fraggos, an expert on the Greek military who has written several books on the subject. Greece went ahead and bought 170 of the tanks for about $2.3 billion.
Adding to the absurdity of the purchase (almost all of it on credit), the ministry bought virtually no ammunition for them, Mr. Fraggos said. It also bought fighter planes without electronic guidance systems and paid more than $4 billion for troubled, noisy submarines that are not yet finished and sit today virtually abandoned in a shipyard outside Athens. At the height of the crisis, when it was unclear whether Greece would be thrown out of the euro zone and long before the submarines were finished, the Greek Parliament approved a final $407 million payment for the German submarines.”
The Defense Ministry is hardly the only ministry suspected of being a hotbed of corruption. But the Defense Ministry makes a particularly rich target for investigators because Greece went on a huge spending spree after 1996 when it got into a low-level skirmish with Turkey over the Imia islets in the Aegean Sea.
One former director general of the Defense Ministry, Evangelos Vasilakos, calculated that Greece spent as much as $68 billion on weaponry over the next 10 years, much of it borrowed money. To win these deals, which involved the approval of military and Defense Ministry officials, as well as Parliament, arms dealers probably spent more than $2.7 billion on bribes, according to Tasos Telloglou, an investigative reporter for the Greek daily newspaper Kathimerini, who has written extensively on the subject.”
Buying $68 billion worth of largely useless weaponry is certainly quite a feat for a country of slightly over 11 million inhabitants. The Saudis may well be able to top that on a per capita basis, but they have a lot of oil money and haven’t required a bailout from anyone. Greece was not able to actually afford these expensive toys.
Even if the weapons were in perfect working order, this buying spree wouldn’t make any sense. Is Greece really going to fight a war with Turkey, a NATO partner? The very idea is absurd. Since we can rule this possibility out, what on earth are the weapons good for?
We can hereby amend Randolph Bourne’s famous saying: ‘War is the health of the State – and its minions and suppliers‘.
Say hello to a white elephant in the Greek shrubbery.
(Image author unknown)
Guest Post: Will Austrian Bank Woes Be Again the Catalyst For A European Kondratieff Winter? | Zero Hedge
Originally posted at The Prudent Investor blog,
Sad affairs have been heating up in the tiny Alpine republic in the center of the European Union. While Austria experiences record unemployment at record growth rates and tax revenues have fallen behind optimistic projections, the looming bankruptcy of a mid-sized regional bank, Hypo Group Alpe Adria (HGAA), may propel the country to the disdained position of being the catalyst for a new round of bank failures due to interwoven banks risks on both the domestic and the international level.
Austrian politicians are up in arms since a third-party expert opinion that recommends to wind down the bank at a cost of €18 billion has been leaked to the media, but keep on marching on the most fatal route that will not dissolve the problems: They keep flogging the dead horse HGAA with taxpayer’s millions in a monthly money injection routine that has cost so far around €4.5 billion.
Current talks involving politicians appear to be more adequately suited for the Vienna opera house, but not for a rolling high finance train wreck that needs more than monthy band aids.
On Monday Austrian financial market authority FMA publicly said what the official Austria never wanted to hear as it is now confronted with a widening public discussion on a problem it had surrealstically hoped to brush under the carpet. FMA head Harald Ettl warned that any further delay would make the – in this blogger’s humble opinion doomed HGAA – an incalculable risk and that Austria should consider no option as a taboo anymore.
Nothing could be more true. An unorderly liquidation of HGAA will not only push Austria from the throne of the best economy in the Eurozone, pushing its public debt to GDP ratio well over 100%, but will also have continent wide reverberations.
Bad Bank Idea Stopped In its Tracks by RBI
The governments preferred solution, a bad bank for HGAA with the other Austrian banks as shareholders was stopped in its tracks on Monday.
Raiffeisenbank International (RBI) CEO Karl Sevelda ruled out his participation in such a special purpose vehicle, claiming his shareholders will vote “no” on this issue. RBI is laden down with its own problems like a 3-digit billion exposure to ailing Central Easter Europe’s countries where it had applied an aggressive “growth before everything else” strategy that is now becoming a boomerang due to to mounting bad loans.
The government was desperate to push through such a bad bank scenario as this would have helped to avoid a rapid expansion in public debts. Without a bad bank HGAA’s debts would trigger guarantees from the owner, the province of Carinthia. As Carinthia is technically bankrupt itself this would lead to triggering state guarantees as Austrian laws do not provide for the bankruptcy of a province.
The FMA’s comments on HGAA will at least have one effect: Fingerpointing between those responsible for the whole mess has already begun. Austria’s central bank, which issued a “no problem” expertise about HGAA at the beginning of the financial crisis in 2008, is more focussed on avoiding investor litigation that could hit the institution based on this old “expertise.”
So where do we go from here? As a dyed in the wool Austrian it can be assumed that the Austrian grand coalition, under fire from all sides since its formation last November because it has only come up with new tax ideas but no sizable savings in its expenditures, will apply the ostrich strategy once more.
Alas, this time the government may not find the time to sip coffee and push the debt wagon further as the EU is watching developments closely. On Monday Daniele Nouy, head of the newly formed EU banking authority EBA warned in an interview with the Financial Times, that it may not be appropriate to merge very sick banks with their not so sick counterparts. While not naming HGAA directly Nouy said, “we have to accept, that some banks will disappear.”
Austria’s banking woes look eerily similar to the failure of Creditanstalt in 1931 that was the fuse for the last European Kondratieff winter. For those sticking with K-cycles this may not be a good outlook. 83 years later such an event is more than overdue in Europe and given Europe’s overall outlook it does not take much anymore to set the Great EU Chaos into full fledged motion.
Chart: The Long Wave Analyst
“Fuck The EU” – US State Department Blasts Europe; Revealed As Alleged Mastermind Behind Ukraine Unrest | Zero Hedge
A leaked recording of a telephone conversation allegedly between US assistant secretary of state Victoria Nuland and the US envoy to the Ukraine, Geoffrey Pyatt discussing who should be in Ukraine’s next government has, according to The FT, threatened to fuel east-west tensions over the troubled nation’s future. In apparent frustration with the EU – which has failed to join the US in threatening sanctions against Ukraine’s leaders if they violently crush the protests – the voice resembling Ms Nuland at one point exclaims “Fuck the EU”. As the two US diplomats decide whether “Klitsch” or “Yats” should be ‘in’ or ‘out’, listeners will be reminded (uncomfortably) that the governments of Ukraine and Russia previously alleged that the protests are being funded and orchestrated by the US.
The authenticity of the recording has not been confirmed (though comparisons to Nuland’s recent media appearances provide some confidence) – the FT reported that the US embassy in Kiev declined to comment, which is a tacit admission: if the clip was a fake, the US would immediately make it clear.
Needless to say, as the FT adds, “[this clip] could also bolster a propaganda campaign by the governments of Ukraine and Russia alleging that the protests that erupted against Ukraine’s President Viktor Yanukovich last November are being funded and orchestrated by the US.” Its release on the day the Sochi Olympics start is also somewhat disturbing.
An excerpt on the US meddling…
“I think Yats [Yatsenyuk] is the guy who’s got the economic experience, the governing experience,” Nuland says. “What he needs is Klitsch [Klitschko] and [Oleh] Tyahnybok on the outside. He needs to be talking to them four times a week, you know. I just think Klitsch going in, he’s going to be at that level, working for Yatsenyuk, it’s just not going to work.”
“Let me work on Klitschko,” he can be heard saying, “and I think we should get a Western personality to come out here (to Ukraine) and midwife this thing.”
The controversial alleged Nuland “Fuck The EU” clip… (the discussion of the EU and UN involvement begins around 2:50)
And for comparison’s sake – Nuland last month delivering a statement on the situation in Ukraine…
In a clip posted on YouTube, voices resembling those of Victoria Nuland, a US assistant secretary of state, and Geoffrey Pyatt, ambassador to Ukraine, are heard talking by telephone about how to resolve the stand-off in Kiev after two months of anti-government protests.
In apparent frustration with the EU – which has failed to join the US in threatening sanctions against Ukraine’s leaders if they violently crush the protests – the voice resembling Ms Nuland at one point exclaims “F**k the EU”.
The two voices suggest Arseny Yatseniuk, the opposition leader and a former foreign minister, should be in a new government in Kiev. But Vitali Klitschko, a former heavyweight boxer and identified as “top dog” among opposition leaders, is also described as inexperienced and needing to “do his political homework”.
The voice resembling Ms Nuland refers to the two men as “Yats” and “Klitsch”.
It could also bolster a propaganda campaign by the governments of Ukraine and Russia alleging that the protests that erupted against Ukraine’s President Viktor Yanukovich last November are being funded and orchestrated by the US.
The Western powers represented by the EU and the US have nothing to stand on to protect Ukraine and can only offer lip-service at best. So once again, it appears that Ukraine is doomed and the best one can hope for there, is that Russia will allow the West to leave. The countdown goes forward and the political and economic crisis is indicative of what we see with the first shot across the bow in the rising trend of the Cycle of War.
A ‘Flood of Good News’
As der Spiegel recently reported, the Greek government is intent on smothering its reluctant creditors with good news (in order to be able to accumulate a reasonable amount of such, the last ‘troika’ assessment has apparently been subject to numerous delays):
“A SPIEGEL report that German Finance Minister Wolfgang Schäuble is considering a third rescue package for Greece has electrified the struggling nation. Athens wants to impress its creditors with a stream of good news. But it still has a long list of unkept promises. New loans are welcome, but don’t ask us for any new austerity measures. This pretty much sums up Athens’ reaction to Germany’s reported willingness to approve further loans to Greece to cover the country’s multi-billion euro projected financing gap in 2015-2016.
Although there was no official reaction to SPIEGEL’s report, published on Monday, government sources say that Berlin’s intentions were known to Prime Minister Antonis Samaras, adding that Germany will not pull the rug from under Greece’s feet, especially with the European election due in May.
But the Greek government has also made clear that it will not accept a new round of measures or a continuation of what are perceived by many in Greece as the asphyxiating and humiliating controls by the troika of European Commission, European Central Bank and International Monetary Fund.
Finance Minister Yannis Stournaras is preparing Greece’s position ahead of the troika’s arrival. With a fresh round of bargaining looming on the new loans, he promised an avalanche of “impressively good news” in the coming days to show that Greece doesn’t need any further belt-tightening. It only needs to press on with its structural reforms, he said.
According to a Greek Finance Ministry official, the good news will include the first increase of retail sales in 43 months, and the first rise in the purchasing managers’ index in 54 months. The “super-weapon” in Stournaras’ arsenal, however, is the hefty 2013 primary budget surplus, now estimated at €1.5 billion, well above the official budget forecast of €812 million.
The same official said the expected good news was the reason why Athens doesn’t want the troika to return earlier to conclude a much-delayed round of inspections that started in the autumn.Stournaras is expected to present Greece’s accomplishments to German officials when he visits Berlin later this week. The final details of his trip are still being worked out. Athens also plans a return to the markets by the end of 2014 in what it believes will be a definitive sign that the Greek economy is out of the woods.
With the leftist opposition alliance Syriza leading most opinion polls, some observers say the Greek government needs to be able to show success soon. Athens was therefore quick to react to the reports about new loans, telling the public it should not fear a new wave of measures.
By all accounts SYRIZA would indeed win elections if they were held today – by a solid margin of almost 8% over its nearest rival New Democracy, the party of current prime minister Antonis Samaras. Electoral support for his coalition partner PASOK – for a long time the ruling party in Greece – has all but disappeared. Even the Stalinist KKE is set to grab a bigger share of the vote.
The upcoming European as well as municipal elections in Greece are bound to see SYRIZA winning comfortably. Meanwhile, the coalition’s majority in parliament has shrunk to a mere three MPs. It won’t take much to topple it, hence all the frantic activity described above.
Greetings from Charles Ponzi
So what’s the problem if there are all those good news, including a ‘hefty primary surplus’? As an aside, said surplus is already greedily eyed by various Greek bureaucrats who have suffered salary cuts which they are currently challenging in court. As the WSJ recently reported, a few European finance ministers held a ‘private meeting’ over Greece recently, to which their Greek colleague wasn’t invited. The problem? The month of May:
“Top officials peeled away from colleagues after a gathering of euro-zone finance ministers in Brussels on Monday evening for a private meeting to discuss mounting concerns over Greece’s bailout. Greek Finance Minister Yiannis Stournaras, who was briefing the press in a building across the street at the time, wasn’t invited.
High-level officials from the International Monetary Fund, the European Commission, and the European Central Bank, as well as senior euro-zone officials and the German and French finance ministers were present.
The meeting reflects anxiety that Greece could yet disturb the relative calm in euro-zone financial markets. But the issue is unlikely to come to a head until May when Greece needs to repay some €11 billion ($14.85 billion) of maturing government bonds.
The private meeting, confirmed by several people with direct knowledge of the talks, comes as Athens struggles to meet some of the conditions set by its official creditors for further payouts from bailout funds. The Monday meeting was held to discuss how to press Athens to forge ahead with unpopular reforms to its labor and product markets, and how to scramble together extra cash to cover a shortfall in the country’s financing for the second half of the year that is estimated at €5 billion to €6 billion.The meeting was inconclusive, people familiar with the situation said.
An € 11 billion bond repayment and a shortfall of € 5 to 6 billion? Oh well, that’s why it’s called a “primary surplus” instead of just a “surplus”. “Primary” means it’s not really a surplus – only that it would be one, if not for the debtberg Greece must service. However, if servicing said debtberg costs more than Greece’s government can actually bring in, then its entire debt edifice remains a Ponzi scheme. Only, contrary to other governments that are able to finance their own Ponzi debt schemes in the markets, Greece needs Ponzi financing from elsewhere, or to be precise, from unwilling tax cows residing elsewhere. That is currently the main difference. The problem for all the other States is that it is important that people don’t start thinking too much about the essential Ponzi nature of government debt. If they do, then there might be another debt crisis. After all, nearly the entire euro zone sports a lot more debt today (both absolute and relative to GDP) than at any time during the most severe crisis months. That fact in turn means that the current calm in the markets really hangs by the thinnest of threads, propped up by misplaced confidence alone. Meanwhile, the much-lamented ‘banks-sovereigns doom loop’ has become worse by almost an order of magnitude in countries like Italy and Spain.
On the other hand, selling yet another bailout of Greece to the voters in creditor countries is quite a tall order at this stage, with the eurocracy already being subject to much scorn and revulsion (all of it well deserved).
What to do?
Helloooo, ‘European partners’ … thinking about me lately?
(Image source: The Web / Author unknown)
Let Us ‘Stipulate For All Times to Come’
Ludwig von Mises once wrote with regard to the inexorably growing mountains of government debt around the world:
“The long-term public and semi-public credit is a foreign and disturbing element in the structure of a market society. Its establishment was a futile attempt to go beyond the limits of human action and to create an orbit of security and eternity removed from the transitoriness and instability of earthly affairs. What an arrogant presumption to borrow and to lend money for ever and ever, to make contracts for eternity, to stipulate for all times to come!”
In the case of Greece, the eurocrats seem to have precisely such an arrogant presumption in mind:
“The next handout to Greece may include extending the maturity on rescue loans to 50 years and cutting the interest rate on some previous aid by 50 basis points, according to two officials with knowledge of discussions being held by European authorities.
The plan, which will be considered by policy makers by May or June, may also include a loan for a package worth between 13 billion euros ($17.6 billion) and 15 billion euros, another official said.Greece, which got 240 billion euros in two bailouts, has previously had its terms eased by the euro zone and International Monetary Fund amid a six-year recession.
“What we can do is to ease debt, which is what we have done before through offering lower interest or extending the maturity of loans,” Dutch Finance Minister Jeroen Dijsselbloem, who heads the group of euro finance chiefs, said yesterday on broadcaster RTLZ. “Those type of measures are possible but under the agreement that commitments from Greece are met.”
Good luck with that last one boys. Greece is still the same over-bureaucratized corrupt swamp it was prior to the bailouts. There will be a deep freeze in hell before the ‘commitments are met’.
Since we mentioned the banks earlier, here is the next non-suprise:
“As Greece seeks to meet its aid conditions and unlock more money from its existing bailouts, it’s also looking for ways to make the most of 50 billion euros that was set aside for bank recapitalization. The country had hoped some money might be left over for other financing needs. That now looks less likely because the Greek banks will need more capital, according to an EU official close to the bailout process.”
You really couldn’t make this sh*t up.
This is what happens when unsound debt is artificially propped up instead of being liquidated. Now there is a never-ending drama. Creditors keep throwing good money after bad, into what appears to be a kind of financial black hole – money falls inside, but it looks like it will never come back. Meanwhile, the population of Greece has been so thoroughly ground into the dirt by the crisis that it is prepared to rather vote for Nazis and communists than continue with the situation as is. What a great accomplishment!
Quick, this thing still needs some more glue …
(Image source: The Web / Author unknown)
First, the Obama administration showed during the course of the GM and Chrysler bankruptcy proceedings, that when it comes to Most Preferred Voter classes, some unsecured creditors – namely labor unions, and the millions of votes they bring – are more equal than other unsecured creditors – namely bondholders, and the zero votes they bring. Five years later we are about to get a stark reminder that under the superpriority rule of a community organizer for whom “fairness” trumps contract law any day, it is now Detroit’s turn to make a mockery of the recovery waterfall. As it turns out, bankrupt Detroit is proposing to favor pension funds at roughly double the rate of bondholders to resolve an estimated $18 billion in long-term obligations, according to a draft of a debt-cutting plan reviewed by The Wall Street Journal.
The breakdown to unsecured stakeholders would be as follows: 40% recovery for pension funds, 20% for unsecured bondholders – all this to the same pari class of unsecured creditors. Because just like in Europe when cashing out on CDS in insolvent nations is prohibited as it would suggest that the entire Eurozone experiment is one epic farce, regardless of how much “political capital” Goldman Sachs has invested in it, so in the US municipal creditors are realizing that in the worst case scenario, they will be layered first and foremost by all those whose votes are critical in keeping this crony administration in power.
According to the WSJ the plan calls for recovery to be divided among the unsecureds amounting to $4.2 billion, more than the originally planned $2 billion to settle claims which included about $11 billion in unsecured debt, including $6 billion in health and other benefits for retirees; $3.5 billion for retiree pensions; and about $530 million in general-obligation bonds.
There is a possibility that final “math” in the Plan of Reorg is changed before the final draft.
It was unclear from the plan reviewed by the Journal whether the city is using all of the same estimates for the money owed to unsecured creditors in its draft plan. A person familiar with the draft plan said the recovery rate for the pension funds could end lower than the balance sheet shows.
Details of the plan sent to creditors on Wednesday have been kept under wraps as the city and its debtholders continue to talk in closed-door mediation. The city sent its working draft to creditors in the hopes that the plan with a richer payout might spur some of them to settle with the city individually or, in the least, offer their own suggestions toward modifying the overall proposal, according to another person familiar with the matter.
The formal plan is expected to be filed in federal court in Detroit within two weeks, officials said. Creditors will vote on the plan, but the final decision rests with the court.
Still, the probability is that Kevyn Orr has finally gotten cold feet on playing hard ball with the unions. “The proposed plan provides the road map for all parties to resolve all outstanding issues and facilitate the city’s efforts to achieve long-term financial health,” Detroit Emergency Manager Kevyn Orr said in a statement Wednesday. Mr. Orr’s spokesman declined Thursday to comment on the plan’s details. Several creditors, who were opposed to the city’s early plans to offer creditors, including bondholders and pension funds, less than 20 cents on the dollars owed to them, also declined to comment.”
One can only imagine the amount of “Steve Rattnering” that must have gone on behind the scenes, and how much more is still set to happen, for such a skewed plan to pass the bankruptcy judge over creditor objections. Which it will once the president makes a phone call.
Then again, with contract law abrogated as was made very clear with this administration’s first steps into the “Fairness Doctrine” back in 2009 and the bankruptcy of GM and Chrysler, nothing can, or should, surprise one any more.
Greece Is Back: Germany, France, Creditors Hold Secret Meeting Due To Greek Bailout “Mounting Concerns” | Zero Hedge
There was a time – roughly between May 2010 and the spring fall of 2011 – when all the world had to worry about was Greece. Then the realization finally dawned that since a Grexit from the Eurozone would kill the EUR and the European integration dream with so much “political capital” invested, crush Deutsche Bank, and bring back the much dreaded (by German exporters) Deutsche Mark, it became clear that there is no fear that Greece, which is now a decrepit shell of a country with a collapsed economy and society in shambles, has now become a slave state to European bureaucrats, business and banks (in Nigel Farage’s words), will never be formally kicked out of Europe and only an internal coup would allow it to finally break free from the clutches of unelected European tyrants. And then the world moved on to more important things: like Japan, China Emerging Markets and how they are all enjoying the Fed’s taper. Sadly, we have to report, that Greece is once again baaaaack.
According to the WSJ, “top officials peeled away from colleagues after a euro-zone finance ministers meeting in Brussels Monday evening for a secret meeting to discuss mounting concerns over Greece’s bailout.
High-level officials from the International Monetary Fund, the European Commission, the European Central Bank, senior euro-zone officials and the German and French finance ministers were present, according to people with direct knowledge of the situation. They spoke on condition of anonymity because they aren’t authorized to talk to the press.
They were trying to figure out how to tackle two issues threatening to unsettle the fragile economic recovery in Greece and the broader euro zone.
They discussed how to press the Greek government to forge ahead with unpopular structural reforms; and second, how to scramble together extra cash to cover a shortfall in the country’s financing for the second half of the year, estimated at €5 billion-€6 billion ($6.81 billion-$8.17 billion).
Of course, this being Europe, nothing was decided: “The meeting was inconclusive, the people familiar with the situation said. Talks with the Greek authorities continue remotely—though representatives of the three institutions, known as the troika, have put on hold their plans to travel to Athens. Concerns are growing because Greece faces a large maturity of government bonds in May of €11 billion. The IMF hasn’t disbursed any aid to Greece since July and is €3.8 billion behind in scheduled aid payments. The IMF insists on having a clear view of the country’s finances 12 months ahead, and this condition hasn’t been met.”
And so the posturing resumes, with the Troika pretending it won’t hand over the funds unless Greece “reforms”, and Greece promising the “reform” as soon as it gets the funds. Nothing new here. What is new, is that finally the facade of Greek sovereignty and independence was stripped away as decisions regarding Greece took place… without
Greece: “Greek Finance Minister Yiannis Stournaras, who was briefing the
press in the same building at the time, wasn’t invited.”
Which is right – after all when a nation is enslaved and has no sovereignty, it doesn’t deserve to have a voice in its future.
Some very relevant observations from Louis Gave of Evergreen GaveKal
Who Will The Emerging Markets Crisis Adjust Against?
In last summer’s emerging market sell-off, India was very much at the center of the storm: the rupee collapsed, bond yields soared and equity markets tanked. The Reserve Bank of India responded by raising rates while the government introduced harsh restrictions on gold imports. Promptly, the Indian current account deficit shrank. So much so that, in the current emerging market (EM) meltdown, India has been spared relative to most other current account deficit emerging markets, whether Turkey, Brazil, South Africa or Argentina. And on this note, the inability of the Turkish lira, South African rand, Brazilian real, etc. to hold on to gains after recent hawkish moves by their central banks is problematic. Markets won’t be calmed until there is clear evidence these countries’ current account deficits can improve. But how can these adjustments happen?
The problem is twofold. First, current accounts are a zero sum game, so future improvements in emerging market trade balances have to come at someone else’s expense. Second, we have had, over the past year, only modest growth in global trade; so if EM balances are to improve markedly, somebody’s will have to deteriorate.
When the 1994-95 “tequila crisis” struck, the US current account deficit widened to allow for Mexico to adjust. The same thing happened in 1997 with the Asian crisis, in 2001 when Argentina blew, and in 2003 when SARS crippled Asia. In 1998, oil prices took the brunt of the adjustment as Russia hit the skids. In 2009-10, it was China’s turn to step up to the plate, with a stimulus-spurred import binge that meaningfully reduced its current account surplus.
Which brings us to today and the question of who will adjust their growth lower (through a deterioration in their trade balances) to make some room for Argentina, Brazil, Turkey, South Africa, Indonesia…? There are really five candidates:
- China, again? That seems unlikely. Instead, China’s policymakers continue to do all they can to deleverage, despite the cost of a slowing economic expansion. Moreover, mercantilism still rides high in the corridors of power in Beijing and so the willingness to move to a current account deficit is simply not there.
- The US, again? As discussed in our recent book (see Too Different For Comfort), the Federal Reserve’s attitude since the global financial crisis has consistently been one of: “the US dollar is our currency and your problem.” The Fed has been happy to print and devalue the US dollar, leaving other countries to deal with the consequences. The days of the US acting as the backstop in the system are now behind us.
- Oil: In the past, collapsing oil prices have come to the rescue during emerging market crises. Of course, this accentuates problems for the EMs dependent on high energy prices for their growth, but is a boon for others (including India, China, Korea, Turkey). Unfortunately, for now, energy prices are not falling, with some more localized markets, like US natural gas, seeing a surge amid record cold snaps.
- Japan: Japan, which has been such a non-player for twenty years, is once again finding its feet. However, it is doing so by exporting its deflation through a central bank orchestrated currency devaluation. How this “beggar-thy-neighbor policy” will help the struggling emerging markets is hard to see, except perhaps through a) capital flows from rich Japanese savers into by now higher yielding EM debt, or b) import substitution on the part of threatened emerging markets where the end consumers will perhaps replace high priced US dollar/euro denominated imports of manufactured goods for cheaper yen denominated ones?
- Euroland: The currency zone’s slight trade surplus is largely due to Germany. However, Germany’s exports to Turkey, Russia, Brazil, etc., will likely suffer as domestic demand implodes in these countries. In this sense—the euroland will be the likeliest candidate on the other side of the EM current account adjustment. Unfortunately, odds are this will take place through falling European exports rather than rising European imports and/or rising EM exports to the eurozone. This is not a good harbinger for global growth.
In short, either oil collapses very soon, or the US dollar shoots up (with Janet Yellen about to take the helm, is that likely?) or we could soon be facing a contraction in global trade. And unfortunately, contractions in global trade are usually accompanied by global recessions. With this in mind, and as we argued in Eight Questions For 2014, maintaining positions in long-dated OECD government bonds as hedges against the unfolding of a global deflationary spiral (triggered by the weak yen, a slowing China, busting emerging markets and an uninspiring Europe…) makes ample sense.