Eurozone: Countdown to Crisis? Yes or No?
Europe is caught in the cross hairs of the exports of deflation from
Japan and China. Delighted by the support to sovereign Bomb er
bond markets, dogged by the too high euro from the capital flows and cursed
by the lack of government, banking, regulatory and tax reform. So the debt
spirals continue and the economic collapse rolls on. Anyone familiar with
the Eurozone knows the Euro is a political project first and a practical
exercise second. This week's Financial times details this in all its gory
detail, detailing how Eurozone elites toppled Governments in Italy and
Greece during the heat of the crisis. It is all about gathering POLITICAL
power in exchange for money printed out of thin air which rarely if ever
arrives.
"Let me issue and control a nation's money supply and I care not who
makes its laws." ~ Mayer Amschel Rothschild, Founder of Rothschild
Banking Dynasty
Regulatory and labor corruption known as crony capitalism, confiscatory taxation
and the myth of the welfare state where people BELIEVE the impossible dream
that they can live at the expense of others guarantee its ultimate demise.
It has destroyed any hope of real economic recovery and income growth. It is
all paper and government myths to sooth the modern day serfs known as the public
from from having a Marie Antoinette moment.
"Government is a great fiction, through which everybody endeavors
to live at the expense of everybody else" ~ Frederic Bastiat
OFFICIAL government statistics understate the deflation risks. Deflation as
measured by Eurostat's HICP Inflation index (which compensates for taxes) has
ALREADY arrived in France -1 pc, -2pc in Holland, Belgium and Slovenia, -4pc
in Spain, Italy and Portugal, -6pc in Greece, and -10pc in Cyprus. Add to the
list in deflation Sweden and Switzerland. Eurozone wide inflation is .6 of
1 percent. It also shows that 23 of 28 countries in the Eurozone have had falling
prices for the last 7 months. This is a death sentence for counties that must
inflate their debts away or die. Look at the trajectory of Debt to GDP ratios
for France and Italy if inflation remains in its current range.
A moonshot in sovereign debt accumulation in the France and Italy the 2nd
and 3rd largest economys in the eurozone, Spain lies just in between. That
is the picture of a slow death by exfixiation as debts spiral out of control
and growth continues to go nowhere. At .5% inflation the top lines are understated.
Growth has been virtually NONEXISTENT in the Eurozone except Germany (the
only capitalist economy on the continent). Broadly Inflation has been in freefall
and momentum is fierce. Inflation in the BASICS such as food and energy continue
to spiral higher. Internationally the debt spirals in developed economies continue
across the globe unrestrained:
Sovereign leverage just spirals HIGHER and HIGHER! Let's see: no growth for
most of the last 4 years but debt compounding at 4 to 7% a year. WOW! This
is a disaster and the European commission & central bank is waiting for
it to explode and explode it will.
As this continues to unfold It has been and will be the source of great civil
unrest, look no further than Italy which has not allowed a vote by the public
since Beppo Grillo and the 5 star movement (anti EU) took large chunks of the
legislature several years ago. Now regime change is done by elites with NO
IMPUT from the voting public. Look for this to continue. France, Italy's and
Spain's finances are crumbling before your eyes. But you wouldn't know it from
the Main stream media who is preaching the mantra that the recovery has finally
arrived. GOOD News for the useful idiots who believe it.
This week's elections for the Eurozone parliament looks to be a real eye opener
as Eurosceptic parties are predicted to seize a MUCH larger slice of the balance
of power in Brussels sending a MESSAGE to socialist elites in control that
their time in power is increasingly on a shorter and shorter leash. Will they
begin to serve the people or continue to serve their masters: elites, banksters,
crony capitalists? Some things never change and these people won't either.
The answer is the latter. Look no further than Greece, France, Cypress, Portugal,
Ireland, Spain and Italy to find the answer. It never ceases to amaze me the
amount of abuse the European people will endure from their elite masters in
European capitals. Civil unrest looms as there is no future for the younger
generation under current GOVERNMENT policies except: stagnation, debt and despair.
Eurozone Governments have spent the last 5 years EXPANDING their previous policies
which caused the crash. Economic Growth and real wealth creation strategies
have been abandoned by its political leaders they have substituted government
dependency, the welfare state and fascism. Entrepreneurs have been regulated
and taxed into extinction.
"It is not an endlessly expanding list of rights ---the "right" to
an education; the "right" to health care; the "right" to food and housing.
That is not freedom. That is dependency. Those are not rights. Those
are the rations of slavery - hay and a barn for human cattle." ~
Alexis de Tocqueville
Broad swaths of the European populations no longer can produce more than they
consume, creating a constant draining of wealth creation through debt issuance
which they call revenue. Bomb er bond yields in France, Italy, Spain, Ireland
and Portugal are at pre-crisis levels as the hot money off the printing presses
from Asia and the US seek YIELD regardless of the true state of the economy.
Here's a small illustration from Spain and Ireland of the insanity gripping
bond market investors.
This picture can be seen virtually across the continent more or less and it
makes me breathless. Look at the crash in rates and spreads. Spain's total
debt load is a staggering 340% of GDP if all sectors are added together. I
believe these markets are pricing in a combination of oncoming deflation, hot
money flows, collapsing growth and financial repression all rolled into one.
Most if not all developed world sovereign bond markets sport debt to GDP levels
50% higher than pre-crisis levels with NO GROWTH for several years. In Europe
they reflect a return to ECONOMIC normalcy that has not happened...
Facilitated by the Global credit rating agencies who FAIL to give the true
pictures of their fiscal and financial health! Politically correct ratings
rather than practically correct which allow institutions to meet investment
rules, it is insidious! However investors are still GOBBLING up the debt. Who
are they is the question? Can't they do the math? OBVIOUSLY NOT!
Look carefully as the EUROZONE banks are worse than ever. Virtually nothing
has been addressed since the crisis. Balance sheets remain clogged with mispriced
assets; their balance sheets are 300 to 400% the size of their domestic GDP's,
lending only occurs to sovereign governments and the best of the big crony
capitalist corporate sectors. The small and medium enterprises private sectors
are starved for credit and issuance (except Germany) is contracting at 2 to
3 percent per year depending on the measurement you review. This is a symptom
of the zombie banks they are.
No or shrinking credit growth in the private sector equals no or shrinking
income and economic growth in the private sector. This chart illustrates the
woeful policies of the ECB since early 2012 when credit growth went negative
for the private sector. That is when the alarms should have been loudest, instead
they have been ignored and the private sector which is the source of ALL REAL
GROWTH is weaker and farther from ECONOMIC recovery than ever.
The Euro is bid for a number of reasons: first from capital flows from China,
Japan, 2nd a run for yields, and third ECB balance sheet contraction which
is aggressively moving lower as the sovereign carry trades and the LTRO expire.
Take a look at the feds balance sheet versus the ECB:
Both of the previous charts are a picture of TIGHTENING credit markets in
the Eurozone while the Fed powers HIGHER but at an ever reduced rate. Can you
say divergence? Additionally, the ECB has NEVER really taken the toxic sludge
down as the FED has done with the MBS (mortgage backed securities). Quantitative
easing in the US and UK has moved Toxic sovereign debt (in the US MBS and agency
debt as well) on to the central bank balance sheets while TOXIC European sovereign
debt has gone into the local banking systems as always.
Author's Note: In my opinion the greatest manmade disaster and OPPORTUNITY
in history is unfolding in every corner of the world. Are you diversified or
operating with EYES WIDE SHUT? Are you prepared to turn it into opportunity
by properly diversifying your portfolio? Adding absolute return investments
which have the potential to thrive (up and down markets) regardless of what
unfolds economically? This is what I do for investors; help them diversify
into investments which are created to potentially thrive in the storm. For
a personal consultation with me CLICK
HERE!
The link between BAD sovereign debt and the banks is BIGGER than EVER. Look
at the nosebleed PE's of the European banking sector. Those forward projections
are not going to accomplished by profit growth and the next charade of stress
tests is about to commence.
The banks have done as they have always done: funding sovereign governments
using a carry strategy with LTRO money, deposits and lending to crony capitalists.
Out on a limb in many areas such as Russia and UKRAINE where their futures
hang in the balance as a default from either will send them into Visible insolvency.
I say visible because they are already deeply insolvent and allowed to operate
in that manner by banking regulators. Regulators who have let them do so for
years and now the problem is UNSOLVABLE in my opinion. Just like the rest of
the planet Europe is choking on unpayable and inextinguishable debt with no
REAL growth or wealth creation! Its call insolvency...
Europe really doesn't have the developed bond markets which are available
in the United States. Most lending has been done through the banks. Quantitative
Easing will be difficult to execute as the private sector debt lies mostly
on bank balance sheets rather than private bond markets as in the United States. The
Germans stand in opposition to purchasing sovereign debt as todays leaders
remember their parents and grandparents stories of the hyperinflation of the
Weimar and the 1940s. So it's NEIN to that.
KEYNESIAN private estimates of the bad debt of $700 billion euros, more credible
main stream media sources put it at 1.4 trillion, my estimate is more than
quintuple (5x) that number. If the banking sectors assets average 300 to 400%
of the size of Eurozone gdp of 10 trillion euro ($13.6 trillion dollars) and
15% of the lending is unrecoverable that implies 4.5 trillion euros ($6 trillion
dollars=$6 million million dollars) of bad debt. They have made provisions
for $60 billion euros (60,000 million of rescue funds payable over the next
several years, .001 of what's required), and the new banking laws pave the
way for the whole continent to by CYPRESSED. This will be attempted in the
crisis to come. Whether they get away with it is another story.
The only responsible Central bank and regulator is the Swiss national bank
which is moving reserve requirements to 20% in preparation of the coming debacle
of write offs. The only other central bank in the world with a 20% reserve
requirements is CHINA. See last edition of Tedbits for the china story.
No reductions of sovereign debt levels have occurred since 2008, and most
have climbed approximately 50% or more. The banking reform is basically an
UNFUNDED farce; it is a masquerade as new rules are created to CYPRESS many
banks as the eventual fireworks unfold.
The Euro is a project to gather power to the central government in Brussels.
None of the aforementioned countries have the power of Seignioriage (central
bank controlled printing presses), that privilege was given to the ECB when
the euro was created. Which is the only way to ATTEMPT to escape the debt spirals
also known as PRINTING THE MONEY. They would have failed anyway but it brings
their demise a little bit closer.
Authors note: Don't miss the next edition of Tedbits "Edge of a Knife
series" where we will be covering the USA. Subscriptions are free at the new TedBits.com blog
is up as well, Exit the Matrix with Austrian commentary and articles from the
main stream and alternative media all in one location. A mental body builders
dream site.
Yesterday the ECB had their monthly meeting and a burst of hot air came from
Mario Draghi's lips, saluting to the deflationary winds but declining to address
them once again. Implying the June is D Day. Of course he is constrained as
Asset backed securities, corporate bond markets are TINY as the lending sits
on bank balance sheets and they cannot securitize them as to do so would require
valuing them which cannot happen unless they are really marked to their true
value, which would be a banking debacle. I promise you he will disappoint in
June, the ECB and European commission will always be a day late and a dollar
short of the solutions required to restore the illusions of growth. These people
only act during crisis, almost never prior to it. Outright monetary transactions
are still only a myth and QE will be too in my opinion. "Whatever it takes" is
now a joke, and markets haven't forgotten: now its fool me once shame on you,
fool me twice shame on me. We are about to see how many fools there are. All
decisions taken are POLITICAL first and PRACTICAL second. It is not a recipe
for FUTURE stability, but rather INSTABILITY!
French economist Frédéric Bastiat wrote about the redistribution
of wealth - or " plunder" - in 1850 in The Law: "There are only two ways
of obtaining the means essential to the preservation, the adornment, and
the improvement of life: production and plunder.... What keeps the social
order from improving (at least to the extent to which it is capable of improving)
is the constant endeavor of its members to live and to prosper at one another's
expense."
Most of Europe has been in plunder mode since Bretton Woods II in 1971. No
one in the main stream media or global capitals speak of what is necessary
to revive growth because none of those measures are to be considered. In fact
the requirement for the policies of growth ended at Breton woods II when easy
money and borrowing from the future created illusions of growth that have grown
to today...
Public economic policy became Printing money, constant devaluation of money,
creating debt slaves of the public and creating demand for crony capitalists
from borrowing from the future to fund them rather than from economies which
create wealth and rising incomes, borrowing from the future for current government
consumption and raising taxes to confiscatory levels. Returning freedom and
income to the private sector to restore incentives to produce has not and will
not be considered by the powers that be.
FREEDOM once taken never to be returned. So don't expect an ECONOMIC recovery
either. The reason AUSTERITY is a dirty word is it means less SOCIAL BENEFITS
for those who depend on them, which is virtually half of them. So cutting back
the welfare state, taxes, and reforming employment and business regulations
is effectively prohibited. Civil unrest looms as the future has been destroyed
by the suffocating embrace of socialism and fascism. It's the same throughout
the developed world including the United States.
The welfare states have forgotten how to create wealth except the German's
who enjoy a vibrant economy based upon the creation of wealth thru their mighty
industrial complexes and Middlestadt, who have been busy becoming suppliers
to emerging markets, the rest of Europe, Russia and most importantly CHINA.
Germany PRODUCES more than it consumes and provides more goods and services
for less money aka as capitalism to those of you who don't know this. That
is the secret of their success. Capitalism is producing wealth as it always
has.
Germans are running a balanced budget and export surpluses approaching 7%
of GDP. They are being attacked for living prudent lifestyles, creating wealth
and stability. When you live in the Eurozone where socialism is the law of
the land their activities are viewed as subversive. Germany's banks are arguably
some of the weakest and most leveraged on the continent. Deutsche bank announced
today an 11 billion dollar capital increase and it is being reported that the
equity were sold at a discount. Take a look at this levered behemoth courtesy
of www.zerohedge.com: 
Doing the math 54 trillion euros is $73 trillion us dollars (73 million million
divided by 11000 million=.001506), that is the size of the move of their derivatives
which would wipe out the new equity. Makes you feel really small doesn't it?
Keep in mind the ALL of the big banks in the core (Germany, UK, France, Italy,
Spain, Ireland, etc.) and periphery are operating at about 33 to one leverage
(at minimum) versus their balance sheets and a small move against them in asset
or derivative markets will wipe them out and DRIVE UP their government debts
up DRAMATICALLY!
Germany is in control of the ECB and the Latin bloc is too timid to mount
a coup. Public servants, elites and the public can't bear the thought of which
is growing by the day that the economy refuses to revive. The socialists are
running out of other people's money. Their policies are KILLING their economies.
Elites and the public await a cyclical recovery that will never arrive. The
banksters eagerly await the next bust, standing ready to gather assets at discounts
and POLITICAL power in exchange for money printed out of thin air. Keep in
mind: it is impossible for a modern day central bank to become insolvent as
all their assets are purchased with money printed out of thin air.
Demographically Europe is shrinking as is Russia, and Japan. Think about how
high youth unemployment would be if this age group was growing rather than
shrinking as a percentage of the population. Socialism is doing its dirty work
of shrinking and collapsing economies and spreading misery widely. Democracy
is now the cover term for socialism/communism and the creed of the collective
which is imploding as we speak.
In closing: No BOOM, just BUST and it is just around the corner. Deflation,
stagnation, civil unrest and never ending economic collapse are the future
for the Eurozone. Nothing can stop it except a wholesale change in leadership
and public policies from socialist governments. Don't hold your breath as you
will die. Socialist empires and Fiat currency and credit financial systems
die in waves of insolvency and the next one is just around the corner. Recovery
in the Eurozone other than Germany is a STATISTICAL mirage, just as it is in
the USA.
Embracing capitalism, wealth creation, competition within and outside the
Eurozone, private property rights, regulatory and labor market reforms, rolling
back confiscatory tax rates and reduction of currency debasement by bank credit
creation for sovereign debt purchases are unthinkable by the powers that be.
They can't even use the printing press as it is forbidden to do so. Conversely,
the US, UK and Japan faces the same bleak future but they will attempt to reverse
it with money printed out of thin air. Stealing what's left of value/purchasing
power from the people who are attempting to store wealth in paper. Both are
recipes for financial disaster ultimately. Confidence is a fragile underpinning
to acceleration of growth especially when there are no fundamental policy drivers
to drive the recovery which there isn't. In REAL TERMS Europe's recovery is
nothing but a charade and Potemkin invention of the powers that be to be fed
to the useful idiots among them.
Minor crack up booms can be seen in equities and bonds in the US, UK and the
Eurozone as money printed out of thin air seeks shelter from financial and
economic repression. Jumping from the proverbial frying pan into the fire.
The future sounds bleak and for many it will be, but in reality it is my opinion
that this is the greatest opportunity in history for those that can really
apply Austrian economics.
Author's Note: In my opinion the greatest manmade disaster and OPPORTUNITY
in history is unfolding in every corner of the world. Are you diversified or
operating with EYES WIDE SHUT? Are you prepared to turn it into opportunity
by properly diversifying your portfolio? Adding absolute return investments
which have the potential to thrive (up and down markets) regardless of what
unfolds economically? This is what I do for investors; help them diversify
into investments which are created to potentially thrive in the storm. For
a personal consultation with me CLICK
HERE!
Tightening known as the taper in the United States is occurring as we speak
and Kuroda in Japan has just announced a coming taper in BOJ money printing.
Combine this with reduced rates of credit creation in China as they tackle
their banking system before a Minsky moment and the clear tightening in the
ECB leaves you a quadruple witching moment for debt dependent markets and economies.
Once the momentum turns south it should produce some real fireworks in markets
and economies.
ECB president Draghi is at a show me moment which he will fail in June, failure
to launch at the next ECB meeting has the potential to become an explosive
situation.
Don't miss the next edition of Tedbits "Edge of a Knife series" where
we will be covering the USA. Subscriptions are free at TedBits.com.
