[Daniel_Plainview]

ZH -- How the Collapse Will Play Out and How to Play For It
$this->bbcode_second_pass_quote('', 'S')ubmitted by Phoenix Capital Research on 09/28/2011 13:12 -0400


As I’ve noted in recent missives to you, the world financial system has begun the Great Collapse: the Crisis I’ve been warning about for over two years. I wanted to take some time to explain what is going to be coming this way

The first wave is going to come from Europe where it is clear that the ECB has reached the End Game of monetary intervention. Germany has said “NEIN” regarding further bailouts for Greece. No German backing… no bailouts… no EU.

So Greece will default. And the bondholders will take a 50% haircut if not more. But Greece is the last of Europe’s worries. Indeed, there is a MUCH bigger problem here and that problem is the same one that created the 2008 disaster: DERIVATIVES.

US commercial banks have over $200 trillion in derivatives outstanding on their balance sheets. However, worldwide, the derivatives market is over $600 TRILLION in size. And the financial system in Europe is as saturated, if not MORE saturated with toxic debt than the US financial system.

According to the Bureau of International Settlements, the total exposure worldwide to PIGS (Portugal, Ireland, Greece, and Spain) debt is over $2.5 TRILLION. Most of this is in the form of derivatives. And 70% of it is from foreign entities (banks and firms located outside of the country).

... Greece is ultimately a small player in this mess. Worldwide exposure to Greek debt is $277 billion. Worldwide exposure to Spain, on the other hand, is north of $1 TRILLION.

Now this is where things get REALLY tricky. Because of the intertwined nature of the derivatives market, a Greek default could result in systemic risk for the simple fact that if one of the banks that goes down with Greece has extensive exposure to Spain as well, then things could get ugly very, VERY fast.

We are close DARN close to this happening. And when it does, we’re going to see a Crisis that makes 2008 look like a picnic.

...

[Novus]

$this->bbcode_second_pass_quote('Daniel_Plainview', '[')url=http://www.zerohedge.com/contributed/how-collapse-will-play-out-and-how-play-it]ZH -- [/url]How the Collapse Will Play Out and How to Play For It
$this->bbcode_second_pass_quote('', '
')
Now this is where things get REALLY tricky. Because of the intertwined nature of the derivatives market, a Greek default could result in systemic risk for the simple fact that if one of the banks that goes down with Greece has extensive exposure to Spain as well, then things could get ugly very, VERY fast.

We are close DARN close to this happening. And when it does, we’re going to see a Crisis that makes 2008 look like a picnic.

...

[prajeshbhat]

$this->bbcode_second_pass_quote('Novus', 'S')omething very similar could be done for Greece where the Greeks get thrown under the bus to save Europe and the Euro. The Greek Drachma could be reintroduced and used as repayment for the debt. Exchange rate set at something like 1.6 Drachma per Euro. Greece would still have to pay back the debt but it could do so under its' own terms with devalued currency.

[Daniel_Plainview]

NEIN, NEIN, NEIN, and the death of EU Fiscal Union
$this->bbcode_second_pass_quote('', 'B')y Ambrose Evans-Pritchard

Last updated: September 30th, 2011


Judging by the commentary, there has been a colossal misunderstanding around the world of what has just has happened in Germany. The significance of yesterday’s vote by the Bundestag to make the EU’s €440bn rescue fund (EFSF) more flexible is not that the outcome was a "Yes".

This assent was a foregone conclusion, given the backing of the opposition Social Democrats and Greens. In any case, the vote merely ratifies the EU deal reached more than two months ago – itself too little, too late, rendered largely worthless by very fast-moving events.

The significance is entirely the opposite. The furious debate over the erosion of German fiscal sovereignty and democracy – as well as the escalating costs of the EU rescue machinery – has made it absolutely clear that the Bundestag will not prop up the ruins of monetary union for much longer. Horst Seehofer, the leader of Bavaria’s Social Christians, said his party would go "this far, and no further".

There can be no question of beefing up the EFSF to €2 trillion or any other sum, whether by leverage or other forms of structured trickery. "The financial markets are beginning to ask whether Germans can afford all this help. We must not risk the creditworthiness of the German state," he said.

The best-read story in today’s Handelsblatt is the mounting rebellion against the EFSF in the Bundesrat, the German senate representing the interests of the regions. While this chamber does not have the power to block budget deals, it has begun to express deep alarm about the drift of events.

Marcel Huber, Bavaria’s Staatskanzleichef, gave an explicit warning that the Free State of Bavaria will not take one step further towards an EMU fiscal union or debt pool.

“A collectivisation of debts will under no circumstances be accepted. We oppose credit lines for the EFSF or leveraging through the ECB. Our message is simple and clear.”

Since the existing EFSF is too small to make any material difference to the EMU debt crisis, this means that nothing has in fact been resolved. We are where we started, almost entirely reliant on the ECB to play the role of lender-of-last resort.

Can it realistically play this role after the double resignation of Axel Weber at the Bundesbank and Jurgen Stark at the ECB itself over bond purchases? Can it defy Europe’s paymaster state for long? You decide.

This great eruption of feeling in Germany has been the transforming political and strategic fact of Europe over the summer. Finance Minister Wolfgang Schäuble is no doubt scrambling around trying to find some formula to breach his pledge that there is no secret plan to leverage the EFSF into the stratosphere.

He will try to pretend that this is not a flagrant double-cross. But his scheming with the French is largely irrelevant at this point. Bigger events are rolling over him. If he really thinks he can dupe the Bundestag yet again, he is out of his mind. And will soon be out of office.

As Bundestag president Norbert Lammert said yesterday, lawmakers had a nasty feeling that they had been "bounced" into backing far-reaching demands. This can never be allowed to happen again. He warned too that Germany's legislature would not give up its fiscal sovereignty to any EU body.

In a sense, the Bundestag vote was much like the ruling by the Constitutional Court earlier this month. It too said "Yes" to the bail-out machinery, but that was not relevant fact. What mattered was the Court’s implicit warning that Germany had reached the outer boundaries of EU integration, that German democracy is under threat, and its explicit warning that the Bundestag’s fiscal powers could not be alienated to Brussels.

Something profound has changed. Germans have begun to sense that the preservation of their own democracy and rule of law is in conflict with demands from Europe. They must choose one or the other.

Yet Europe and the world are so used to German self-abnegation for the EU Project – so used to the teleological destiny of ever-closer Union – that they cannot seem to grasp the fact. It reminds me of 1989 and the establishment failure to understand the Soviet game was up.

Our own Chancellor George Osborne has fallen into this trap. I can entirely understand why he is calling for quick moves towards EMU fiscal union, but such an outcome is not on the table.

Repeat after me:

THERE WILL BE NO FISCAL UNION.

THERE WILL BE NO EUROBONDS.

THERE WILL BE NO DEBT POOL.

THERE WILL BE NO EU TREASURY.

THERE WILL BE NO FISCAL TRANSFERS IN PERPETUITY.

THERE WILL BE A STABILITY UNION – OR NO MONETARY UNION.

Get used to it. This is the political reality of Europe, since nothing of importance can be done without Germany. All else is wishful thinking, clutching at straws, and evasion. If this means the euro will shed some members or blow apart – as it almost certainly does – then the rest of the world must prepare for the day.

It has certainly been an electrifying few weeks.

I happened to be in the room with a group of Nobel economists in Lindau last month when German President Christian Wulff lashed out at Europe, accusing the ECB of violating its mandate and subverting the Lisbon Treaty.

“I regard the huge buy-up of bonds of individual states by the ECB as legally and politically questionable. Article 123 of the Treaty on the EU’s workings prohibits the ECB from directly purchasing debt instruments, in order to safeguard the central bank’s independence,” he said.

“This prohibition only makes sense if those responsible do not get around it by making substantial purchases on the secondary market,” he said.

Mr Wulff said Germany itself risks being engulfed by escalating debts. Who will “rescue the rescuers?” as the dominoes keep falling, he asked.

"Solidarity is the core of the European Idea, but it is a misunderstanding to measure solidarity in terms of willingness to act as guarantor or to incur shared debts.

"With whom would you be willing to take out a joint loan, or stand as guarantor? For your own children? Hopefully yes. For more distant relations it gets a bit more difficult."

More distant relations?

“All I heard was Germany, Germany, Germany. There was nothing about Europe. It was astonishing,” said Myron Scholes, the winner of the 1997 Nobel Prize.

Indeed it was. Fellow laureate Joe Stiglitz said that if President Wulff’s views reflected the outlook of the German government, monetary union would have collapsed already.

Well yes. Quite.

[nobodypanic]

and so the new century has a chance to start much like the old w/germany preparing to screw the world.

[patience]

Something Wicked This Way Comes...
IMF advisor says if they don't REALLY fix Europe's troubles in a couple weeks, they are toast:

http://www.youtube.com/watch?v=6UGDT...layer_embedded

And it will spread. Fast.

Deal wth banks at your own risk from here on.

[careinke]

$this->bbcode_second_pass_quote('patience', '[')b]Something Wicked This Way Comes...
IMF advisor says if they don't REALLY fix Europe's troubles in a couple weeks, they are toast:

http://www.youtube.com/watch?v=6UGDT...layer_embedded

And it will spread. Fast.

Deal wth banks at your own risk from here on.

[dolanbaker]

Not the same link but the story is the same http://youtu.be/MFJAOxdBr2o

[dolanbaker]

Here is the same video with the original link (well the first four characters match) IMF advisor says we face a Worldwide Banking Meltdown
http://youtu.be/6UGDTtqklSo

[prajeshbhat]

Couple of weeks. Come on.....I thought we still had a couple of years.

[dolanbaker]

It's only a ploy to get the Governments, oops, I mean taxpayers, in Europe to bail them out rather than lose their own money.

EU pride will mean that they'll do almost anything to save the Euro.

[evilgenius]

$this->bbcode_second_pass_quote('dolanbaker', 'H')ere is the same video with the original link (well the first four characters match) IMF advisor says we face a Worldwide Banking Meltdown
http://youtu.be/6UGDTtqklSo

[Daniel_Plainview]

Well, well, well ... it appears that underneath the sparkling surface of the seemingly robust and invincible Chinese economy, there are potentially huge problems with a weakening banking sector and sagging stock market. Chinese policy makers will, of course, try EVERYTHING to reflate the bubbles ... and they need merely look at Heli-Ben and Obimbo for an endless stream of ideas to artificially inflate a dying economy.

It's axiomatic to observe that when China collapses, so too collapses the fragile global house of cards.

From the Financial Times -- Beijing intervenes to help stabilise banks

$this->bbcode_second_pass_quote('', 'B')y Simon Rabinovitch in Beijing
Reuters

Beijing will buy more shares in China’s biggest banks, in an expression of support for the beleaguered stock market and most concrete state action to date to shore up confidence in the slowing economy. Central Huijin, the domestic arm of China’s sovereign wealth fund, will buy the shares to help stabilise the pillars of the country’s financial system, the official Xinhua news agency said on Monday.

Coming as the Chinese stock market closed at a 30-month low, the move was the strongest sign that Beijing wants to engineer a restoration of confidence in share prices and the economy. It paid instant dividends with a rally in the final minutes of trading on Monday.

Although Chinese growth has so far held up well, the European debt crisis and the risk of a double-dip recession in the US have cast a shadow over the country’s economy. With inflation running near three-year highs and debt levels swollen by heavy spending, economists doubt that Beijing could launch the kind of stimulus it did when the global financial crisis struck in 2008.

Sensing vulnerability, investors have turned against China, driving down commodity prices, betting on the chances of a government default and selling shares in the banks that are the economy’s lifeblood.

The government, through Huijin, is already the majority shareholder in all of the country’s major banks. While the announcement gave no details about how much more it intends to buy, it was unabashed in declaring that it aimed to halt the roughly 30 per cent slide in bank stocks in recent months... The last time Huijin made such a publicised move was in September 2008, when the outbreak of the global financial crisis had dealt a blow to the Chinese stock market. ....

[patience]

Yes, the Chinese have their problems with the US exporting inflation to them in return for their less-than-stellar manufactured goods. Now, the US is trying to get more for our fiat dollars, attempting to pass a bill that would force China to allow their currency to float and rise in value. If this passes, it is reminiscent of Smoot-Hawley, the protectionist bill that put the final touch on the Great Depression.

Read more: http://www.zerohedge.com/news/futures-s ... -trade-war

Meanwhile back on Main Street: http://www.zerohedge.com/news/it-begins ... protection

With Harrisburg, PA following a few other cities into bankruptcy, muni bonds aren't going to be the same again.

[GoIllini]

Well, we're in a secular bear market- or as I like to call it, the Malthusian leg of a 35 year market cycle where the market spends 15-20 years growing and 15-20 years flat. The last time this happened was 1965-1980; prior to that it was 1930-1945.

1.) This is nowhere near as bad as Smoot-Hawley.

2.) Brazil really fired the first shot with a 15% tariff on China.

3.) The US did climb out of the Great Depression. We will never climb out of this until we address China's addiction to mercantilism. It may end with a war, but we are an ocean away and produce half of China's food, so it will probably end quickly.

A tariff is helpful and necessary. However, I would much rather start with an export tax on grain being shipped to China. We need to show them who really holds the cards here. You can run an economy without cheap DVD players; good luck trying to run it without food.

[ralfy]

$this->bbcode_second_pass_quote('GoIllini', 'W')ell, we're in a secular bear market- or as I like to call it, the Malthusian leg of a 35 year market cycle where the market spends 15-20 years growing and 15-20 years flat. The last time this happened was 1965-1980; prior to that it was 1930-1945.

1.) This is nowhere near as bad as Smoot-Hawley.

2.) Brazil really fired the first shot with a 15% tariff on China.

3.) The US did climb out of the Great Depression. We will never climb out of this until we address China's addiction to mercantilism. It may end with a war, but we are an ocean away and produce half of China's food, so it will probably end quickly.

A tariff is helpful and necessary. However, I would much rather start with an export tax on grain being shipped to China. We need to show them who really holds the cards here. You can run an economy without cheap DVD players; good luck trying to run it without food.

[GoIllini]

$this->bbcode_second_pass_quote('', 'T')his is probably not just some "secular bear market" or a "Malthusian leg" of a "market cycle," especially given peak oil, and oil needed not just for "cheap DVD players" but also for mechanized agriculture and even military operations. It also gets worse when up to 40 pct of those military operations involve foreign loans and passed on to sheeple who think that "we", i.e., the government that bailed out the 1 pct and passed on the debt to the sheep, will help them.

FInally, we're looking at an economy where 70 pct of activity is based on consumer spending and where significant amounts of goods need to be imported to keep the JIT system running. And other countries face similar problems.

[evilgenius]

Those are interesting social points GoIllini. I wonder if you have read Pretorian's views on who the important people in society are? Which is to say, do you view the have nots as rights enabled, responsibility bound, or some combination? Personally, if you were wondering, I see them in some combination. I believe in democracy all the way, but worry greatly about the manipulations taking place in the world pertaining to the psyches of those in the bottom 90%.

[GoIllini]

$this->bbcode_second_pass_quote('evilgenius', 'T')hose are interesting social points GoIllini. I wonder if you have read Pretorian's views on who the important people in society are? Which is to say, do you view the have nots as rights enabled, responsibility bound, or some combination? Personally, if you were wondering, I see them in some combination. I believe in democracy all the way, but worry greatly about the manipulations taking place in the world pertaining to the psyches of those in the bottom 90%.

[ralfy]

$this->bbcode_second_pass_quote('GoIllini', '
')
Folks said that about coal 100 years ago- that formed another Malthusian leg in the 1890s. Fact is that we have plenty of natgas in the ground and we are transitioning towards an electric economy with the Leaf and the Volt.

Worst comes to worst, we move to Thorium/fission. Fukushima did confirm western engineers' views that three meltdowns due to a 9.0 magnitude earthquake would be only 1/3 as severe as Chernobyl. It also reminded us engineers that we have no people/social skills and that in a Western democracy, the damage from a nuclear meltdown is much deeper on a psychological level than we had anticipated.

In 1850, the Great Lakes region produced enough food to feed 500 million people on a beef, chicken, and potatoes diet. Even if we get global warming and gloom and doom, the US won't go hungry anytime soon. And new farmland will probably open up in Canada. I worry a good deal about China and the old world- and I'm not sure every middle-class family will have a car in 20 years- but we will be ok in the West. The bottom 90% of the country will probably have to give up cars and >1000 square foot homes; the top 10% will still largely be unaffected. And if you're intelligent enough to be on this site and realize how resources are connected to the economy, you're probably not in the bottom 90%, so you don't have to worry all that much.