The Alarm Goes Off …

CLB 031713

Figure 1: Does the crude market unravel due to hoarding of funds or is there a ferocious price spike followed by a crash? The EU plays with fire. Chart comparing costs for replacement crude oil to what the customer can afford to pay: by TFC Charts (click on for big). The time remaining to adjust or make positive changes in policy direction has become shorter and more uncertain. The window of roughly two years until fuel supply shocks presumed no policy errors on the part of the establishment.

Welcome to the new, improved bank run!

The European Union bosses have levied a tax against bank depositors in Cyprus, the purpose being to maintain the drive-first status quo. By doing so they appear to have stepped off the end of the gangplank (NY Times):


Facing Bailout Tax, Cypriots Try to Get Cash Out of Banks

Liz Alderman, NY Times

ATHENS — In a move that could set off new fears of contagion across the euro zone, anxious depositors drained cash from automated teller machines in Cyprus on Saturday, hours after European officials in Brussels required that part of a new 10 billion euro bailout be paid for directly from the bank accounts of ordinary savers.

After Negotiations, Cyprus Agrees to a Euro Zone Bailout Package (March 17, 2013)

The move — a first in the three-year-old European financial crisis — raised questions about whether bank runs could be set off elsewhere in the euro zone. Jeroen Dijsselbloem, the president of the group of euro area ministers, declined early Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.


This is naked confiscation of funds from ordinary citizens, there is no correlating increase in worth of the remaining funds or expansion of the Cypriot economy. It is simply shoveling more good money down the euro rat hole to save senior secured creditors to the banks from loss … as well as support the automotive waste status quo.



Athens, Greece is flooded with rainwater as well as with endless streams of traffic. Europeans do not realize that as long as one car is running in Europe and elsewhere, there will be economic decline. Globalization at work: the Europeans are subsidizing fuel demand in China which increases competitive cost pressure in Europe. This decline is spread to Cyprus by way of its banks, an afterthought to the crisis that has engulfed Greece and the other euro-states.


Under an emergency deal reached early Saturday in Brussels, a one-time tax of 9.9 percent is to be levied on Cypriot bank deposits of more than 100,000 euros effective Tuesday, hitting wealthy depositors — mostly Russians who have put vast sums into Cyprus’s banks in recent years. But even deposits under that amount are to be taxed at 6.75 percent, meaning that Cyprus’s creditors will be confiscating money directly from pensioners, workers and regular depositors to pay off the bailout tab.


Problems in Cyprus are not new, the country’s banks have loaned large amounts to Greek businesses and banks, the loans are multiples of Cypriot GDP. As Greece falls further into bankruptcy, so do the Cypriot banks.

Cyprus is also in the cross-hairs of European bank regulators as Russian ‘investment’ funds flow into Cypriot banks from Russia … then back out again. Regulators accuse Cypriot bankers of laundering funds of Russian gangsters and oligarchs. The source of particular funds is unclear but in aggregate, all euros in the hands of Russian depositors are from European energy consumers buying Russian non-renewables including natural gas and crude oil.

The Washington Post says:


Why today’s Cyprus bailout could be the start of the next financial crisis

Neil Irwin

It is a bad day to have your money deposited in a bank in the Mediterranean island nation of Cyprus. And it may just mean some bad days ahead for the rest of us.

Early Saturday, the nation reached an agreement with international lenders (IMF, European Central Bank and European Union) for bailout help. Part of the agreement: Bank depositors with more than 100,000 euros ($131,000) in their accounts will take a 9.9 percent haircut. Even those with less in savings will see their accounts reduced by 6.75 percent. That’s right: Anyone with money in a Cypriot bank will have significantly less money when the banks open for business Tuesday than they did on Friday. Cypriots have reacted with this perfectly rational reaction: lining up at ATM machines to try to get as much money out in the form of cash before the money they have in their accounts is reduced.


The idea that emerges is that banks — like real estate — are currency traps, that there is no ‘safety’ for funds … anywhere. – A bank run has been underway in Europe for several years. Part of this is the foreign exchange aspect of the eurozone and is structural.

Unholy Trinity 2

Figure 2: The God-like Unholy Trinity which determines the course of foreign exchange for all countries including those in Europe. A country can have an independent monetary policy, it can maintain a currency peg with another country or countries and it can enjoy the free flow of capital across its borders. It can effect two of these, or two can be denied, but never all three at once.

The worth of money is determined — not by central banks — but by its voluntary exchange for a valuable physical good on demand … at gasoline stations around the world millions of times a day. Even with policy rates set to zero and the all-out lending to governments by central banks there is no independent monetary policy … anywhere. The worth of money is determined by its exchange for crude and crude products and nothing else. The only policies that central banks can effect are those that make matters worse.

The euro is not a currency in the sense that it is the product of a nation named ‘Europe’, rather it is the collection of currencies of individual European nations that all happen to be called the euro. These currencies are all pegged to each other, a source of Europe’s misery as there is no way for the individual euros to be repriced independently of the others. Europe has the pegged currencies and no independent monetary policy: all that remains is the free flow of capital or not across European borders … that is, bank runs.

Bank runs are baked into the cake to some degree because of the use of the European Stability Mechanism (ESM) which is a credit-laundering machine to allow the ECB to make unsecured loans. This is fatal to the central bank because it has insufficient capital and its assets are the same assets that have bankrupted the various commercial banks. Once implemented — due in April — here is no effective lender of last resort in Europe. The ECB is simply another insolvent European commercial lender.

Keep in mind, if states impose capital controls — to restrain the free flow of capital — there is no more peg which means no more euro!

The system is clearly worth more to the Europeans than the funds it contains. The system is embodied in the euro which = gasoline. Stripped to essentials, the Europeans are choosing to drive over maintaining a functioning economy. Granted, the economy has depended upon driving to maintain cash flows, but this waste-based approach is unraveling. Cash flows will be interrupted regardless of what the Europeans choose to do. It would be best for the Europeans to jettison the driving and use the money to re-capitalize a less wasteful economy.

When the euro system fails it will be as a result of eurozone countries being bankrupt, not defects of the euro itself. When a country is bankrupt to the degree it torpedoes the euro that country cannot do better with any other currency! In other words, these countries in Europe could dollarize and they would still be bankrupt.

At this point in the five-year decline in Europe, policy errors are unavoidable. Bank assets in Europe are worthless. They are essentially car loans … along with loans to enable the Europeans to buy fuel which has been burned up for absolutely no return. This is why the countries are bankrupt, not because of the euro which is simply a currency.

Europe has made itself vulnerable to push-back from Russians who are large depositors to Cypriot banks. Russia will pay itself at the front end of the natural gas pipeline: 10% less deposits, 10% less gas. All Putin has to do is order pet Gazprom to turn a valve and the Europeans freeze inside their houses.

Not the first time depositors have been ravaged in Europe: Spanish depositors have been made into stockholders of combined banks after smaller home-loan banks failed. When the combined banks failed in turn the new shareholders were completely wiped out.

From the ‘shooting oneself in the foot and liking it’ department: the entire euro banking system collateral is the same system’s deposits. European banks need more deposits not less! Instead of stifling contagion in Europe as is claimed by the managers, this action looks to be the trigger for Continent-wide bank runs.

It will be very hard for the establishment to put this particular genie back into the bottle. Even discussions about withdrawing the action will be destabilizing as every word will be freighted with consequences to depositors, not just in Cyprus but elsewhere.

The strategy to solving money laundering is to deal with it directly, by prosecuting criminals rather than penalizing ordinary bank customers. It isn’t the customers’ fault that Russian- and other overseas criminals use Cypriot banks, there is nothing ordinary bank customers can do about it, either.

Whatever the Troika hopes to gain by annexing deposits will be lost by the European Central Bank and the banking system as a whole.

Notice that the action took place on a weekend, as was the case during the ‘Lehman breakdown’. Also notice that Cypriot banks are now to be closed on Tuesday as well (Monday is a Cypriot national holiday).

Financial Times:


“(Cyprus President Nicos) Anastasiades explained that Cyprus gave way after the ECB threatened to push the island into a disorderly default by withdrawing liquidity support for Laiki, its second-biggest bank, on Tuesday.

He said Cyprus had a choice between “a catastrophic scenario of disorderly bankruptcy, or a scenario of a painful but controlled management of the crisis”.


According to Cyprus sources, the IMF and German managers wanted a 40% haircut. 7-10% is only the first installment. The Cyprus bank insolvency cannot be cured, only the money interests made whole by the rest.

All EU depositors — in countries with similar finance problems as Cyprus or not — are facing theft of funds. In Cyprus, funds are stolen from depositors and handed to senior secured creditors of the Cypriot banks, preferred shareholders, lenders to the Cyprus state and depositors to Cypriot banks outside of Cyprus. The establishment is afraid the bondholders won’t lend any more. The EU system is broken, nobody knows what to do, there is no reason to lend, anyway.

With the cost of new fuel rising due to geological constraints, with access to credit diminishing due to high energy prices, there has been a rapidly shrinking window of opportunity for the managers to take appropriate actions to strengthen the money- system and to conserve resources/capital. That window is now being slammed shut by foolish managers.

Notice how the ‘system’ works, nothing really changes except the scale: from, “Hiding in plain sight”:

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

Henry Ford


Q: How would you describe the economy?

A: It is a system that allows a select few to borrow immense fortunes. The rest of us … you, me, everyone else … repay the debts.

Q: That’s it?

A: That’s it.


The face of Peak Oil. [1]

We are in the middle of a crisis that has been ongoing for almost five years now: the managers demand the economic system be bailed out. Of whom do they make demands? Entrepreneurs? Innovators? The finest minds of a generation?

A: Pensioners. (Bank depositors.)

The economies must become more productive which means increasing the efficiency of output. Consequently, pensioners are called upon to sacrifice their retirements in the UK, Greece, Ireland, Portugal, in the US … in cities and states pensions everywhere are under attack.

Why not more machines? If machines are productive, wouldn’t deploying more machines solve the economic problems around the world rather than deploying pensioners (and bank depositors)? Technology is supposed to save us but the raiding of pensions — and bank accounts — insists otherwise: the scraping of the bottom of the barrel in real time. It’s an admission that technology won’t work, from the people who are in a position to know.

What happens after the retirements (and bank accounts) are pilfered? Who knows? Nobody has a plan.

The world is shocked to discover a shortage of capital, not for investments but to prop sagging balance sheets. Who could have guessed as capital has been shoveled into the furnaces of ‘development’ for decades? Only economists and bureaucrats believe that we never run out of inputs.


China’s Biggest Banks Are Squeezed for Capital

Neil Gough (NY Times)

China’s banks are among the biggest and most profitable financial institutions in the world. But the state-backed banks are also starved for capital after an aggressive lending spree that was encouraged by the government.


Maybe they are profitable and maybe not. “Starved for capital,” suggests not. The operating idea is that capital is money rather than material inputs. These inputs are mispriced so that the money-equations used by industrialists add up to something ‘positive’. Cheating works until it doesn’t any more: substituting debt for unaffordable inputs doesn’t produce anything. Debt isn’t capital and self-delusion isn’t capitalism. Maybe we should call our economic system ‘Delusionism’ and be done with it.


Within the last year (2011), seven of the biggest Chinese banks tapped the markets for 323.8 billion renminbi ($51.4 billion ) in new funds, according to Citigroup estimates. Several financial firms are expected to raise another $17.7 billion in the next few months, with China’s fifth-biggest lender, the Bank of Communications, accounting for $9 billion.

Banks around the world have been tapping investors for new funds as they struggle with slumping share prices and waning profits. But Chinese firms have maintained that their profit growth is strong and their balance sheets are solid, raising red flags among some analysts about the banks’ persistent capital needs.


Chinese bankers and business tycoons, each more corrupt than the last: raise that Red Flag high! The Chinese need capital because so many are stealing it and removing themselves overseas.


The problem is that paying out high dividends blows holes in their base capital. Thus, banks need to continue tapping the markets for fresh funds, often diluting minority shareholders by issuing new shares. The finance ministry, the banks’ ultimate controlling shareholder, always buys in, keeping its stakes topped up.


Somebody at the bottom always takes it in the neck. Today, it’s the minority shareholders, tomorrow it will be the junior bondholders or the pensioners or the schoolchildren forced to eat radioactive school lunches. This is part of an ongoing process, not a new feature within delusionism. It was invisible when everyone was busy getting rich: now that the abuses are visible it can only be on account that fewer are getting rich. The endgame heaves into view.

The journey from ATM to ATM to withdraw money is just beginning in Europe, as it was years ago in Argentina. After that comes the banging of pots and pans in the streets, then come bomb attacks on police stations. This is not a good journey for the Europeans to be embarked upon.

ADDENDUM: One of Mish’s correspondents breaks down the liabilities of the Cyprus banks involved in the ongoing fiasco and brings some info to light, (Jeff Baryshnik, Baryshnik Capital Management Inc.):


Hi Mish

I read with interest your article on the Cyprus bailout deal. After a quick review of the most recent financial statements of the four publicly listed Cypriot banks as shown on their websites, it is notable that a simple alternative proposal could protect the country from bankruptcy and make its depositors whole.

By wiping out 100% of the equity, 100% of the bondholders, and 17% of the banks’ liability to central banks, the Cypriots could stabilize their banking system (based on the 5.8Bn EUR figure being discussed) without penalizing local savers.

Instead of raising 5.8Bn EUR from depositors, it could raise 1.4Bn from combined market cap, 2.0Bn from bondholders and preferred shareholders, and 2.4Bn of the 14.3Bn in combined Central Bank loans (Cypriot and ECB) it has on its books. This assumes zero contribution from the Cypriot subsidiaries of foreign banks so it may be conservative.

If the banking system is bankrupt, anything other than an Alice-in-Wonderland recovery system suggests that the order of liquidation is shareholders, preferred shareholders, debt holders, Central Bank creditors, and THEN depositors. If 10Bn or even 17Bn EUR is truly required, then coincidentally up to 17.7Bn EUR is available from equity holders, debt holders, and Central Bank creditors without impairing a euro cent from depositors.


Ed Harrison suggested that there were insufficient senior creditors and attaching depositors was necessary. This does not appear to be the case.

[1] Unidentified cinematographer, ‘The Character Humongous from the film, Road Warrior’.

36 thoughts on “The Alarm Goes Off …

  1. g-minor

    You wrote: “Globalization at work: the Europeans are subsidizing fuel demand in China which increases competitive cost pressure in Europe.”

    Please explain. What is the mechanism by which Europeans are subsidizing fuel demand in China? I’m afraid this is a little over my head.

    1. steve from virginia Post author

      China’ number one or number two customer is Europe, right up there with the US.

  2. Ed

    This is a long and hard to digest essay. However, somewhere in it is buried the best explanation of the euro that I have seen, that the euro is a bunch of pegged together currencies that happen to be all called “the euro”. This really explains all the problems, since pegged currencies don’t work more than temporarily.

    I think the euro mainly a political project, countries were to be sold on the benefits of a “single currency”, and then along the way people would realize that the only way to make something like that work would be to have a real “single currency”, which means not only a single central bank but making the European Parliament the main taxing authority within the currency area. But the attempt to introduce strong federal European institutions failed, I suspect also for political reasons: a decline in the quality of leadership at the top in Europe (which is really a worldwide phenomenon), plus the unravelling of the USSR and the decline of the USA (which isn’t discussed much in public but I think is a factor in elites’ calculations) means having a unified Europe is just not as important as it used to be. So the crisises of the pegged euro were supposed to happen, but because the political circumstances are different from in the 1980s when the project was conceived, the response is different.

    Incidentally, neither Greece or Cyprus should have been in the European Union in the first place. Putting in Cyprus, an money-laundering haven with a government that does not control a third of the island, and which isn’t even in Europe geographically, was especially stupid and I thought so at the time.

    1. steve from virginia Post author

      A political argument is always a good one considering Europe’s history. The timing supports an energy-hedge argument as the concept-building took form after 1973/OPEC oil embargo.

      The end of Bretton-Woods Agreement was another factor as the dollar became unstable yet expensive due to volatility. The Europeans used a number of Schengen pseudo-currencies such as European Unit of Account, which were proto-euros.

      I secretly believe the Cyprus addition was intended to capture and recycle Russian cash flows sent first from Europe to Russia for energy, these were to be recycled back toward the Continent. Sadly for all concerned, the ‘great investment’ the Cypriots had in mind was Greek bank bonds and sovereign debt! If the Cypriots had invested in bunds or US Treasuries, there would not be a problem in Cyprus today.

      Greece was a payoff for not aligning with the Soviets during the Cold War. Blame the State Department for than one.

      1. Makati1

        Well, buying USTs would have only delayed the breakdown by a few years at best. Any who assume that the US is safe … lol … needs to go to their shrink for a checkup.

      2. steve from virginia Post author

        Euro-collapse is a hot potato. The idea is to toss the grenade around and hope it goes off in the hands of someone blameworthy.

        Nobody in the EU — or in the analysts’ community — has caught on to the hand grenade idea. This includes Cyprus. They are the perfect donkey to pin the tail on: small country, closer to Damascus than Berlin, one-third occupied by Turkey, vacation paradise for thousands of hated Brits, small economy that uses rubles and Turkish lira alongside the euro, over-filled with gangsters and smugglers. It’s small, out of the way, over-leveraged and unfashionable. It never should have been admitted to the euro-family in the first place. Having it blow up instead of Spain would take the euro-establishment off the hook. It would allow the eurozone to restructure … and get back to the task of wiping out the world’s last petroleum reserves … sustainably, of course.

        Cyprus’ politicians and bosses should have realized this. They should have sent Russian funds deposited in their banks to the Germans instead of the Greeks. Instead, they chased Greek yields, believing that they could close any positions or otherwise escape from harm in time. They were wrong, they believed this was a business matter not a political scheme to fix blame. The needed to play safe and let the hand grenade go off elsewhere.

        Now … Cyprus is IT. Even after the down-vote of the depositor robbery, Cyprus is still IT. If one grenade doesn’t go off another will be handed over.

  3. Ed

    I’m pretty sure that Argentina confiscated the deposits of ordinary savers during one or several of their financial crosses. In fact this may be pretty routine in Latin America.

    One result of this is that Argentines just don’t save, an attitude that makes sense if there is a good case the government will confiscate your savings anyway.

    Actually I think the exhortations for ordinary people to amass savings even in places like the US and Europe make little sense in a low interest, decreasing real wage, and high fraud environment. The problem with Americans is more debt than lack of savings, and the only way you can really avoid debt in the US is to not buy a house, not go to college or send your kids to college, and to find someway to avoid using the medical system.

  4. The Dork of Cork.

    I think this must be a effort of the core to drive even further peripheral deposits into their banking black hole.

    The solution would in my opinion orbit around turning these double entry deposits into national equity money. (and leaving the euro).

    Houses and stuff should be given to mortgage holders with the declaration that governments no longer care about these former bank assets.
    Governments are now in the business of preserving what little national wealth remains.
    These assets prevent rational money transmission
    They are a .hinderance to the remaining rational physical economy etc etc.
    People can then trade these former bank assets for their real present utility value rather then their ” growth potential”

    However that will not be considered as then the bank asset conduit extraction game would be seen in all its dark absurdity.

    The euro crisis has at least done us citizen serfs a favour.
    The deep stress within the banking system has pulled back the curtain on the reality of the political construct / its real chain of command and I am afraid its not pretty.

    Anyway ,at least we can become bankrupt without any of those absurd illusions they filled our heads with for perhaps hundreds of years.

    1. debu


      While I do sometimes wish you contributed fewer comments to these threads much, if not all, is forgiven for this concise gem of an observation:

      “The deep stress within the banking system has pulled back the curtain on the reality of the political construct / its real chain of command and I am afraid its not pretty.”

      I shall be passing it around.


      1. The Dork of Cork.


        The ECB has now become the primary political agent within Europe.
        It has threatened to shut down the Cypriot banking system.

        Under the Euros structure it seems they have full fiat (political) power.
        Is the banking serfdom circle complete ?

  5. Robert

    The Eurocrats have thought this Cypress bank tax through. Put simply … this is a test. The amounts involved are small enough that the EU can afford to bail out small Cypress depositors at 100% if enough of a stink is raised. If not, then they have a blue print for Greece, Spain, etc when the time comes. With the exception of Iceland, people across the world have wimped out and that is exactly what the banking class is counting on here.

  6. Reverse Engineer

    I think the Krauts are at the end of their rope and can’t stomach the idea of wholesale bailout of Ruskie energy Gangstas.

    The timing issue probably stems from what occurred in the Itie Elections. The Krauts see the writing on the wall, they are trying to leave with whatever they can take. Taking Ruskie money first appeals to the Kraut mindset. Payback for Leningrad.


  7. dolph

    Speculation does abound about this. Is this a miscalculation or a trial run?

    To those of us who understand what’s going on, either way it’s a miscalculation, because any small move and the genie is out of the bottle.

    Yes this is the way the system is. It is not resilient, it is fragile. It either works beautifully or fails altogether, there’s no in between, no redundancy, no systemic hedges. Only the hedges that you personally can come up with.

  8. iguanaisland

    The whole collapse must be global in scope—-Tainter makes that clear—-so the cars have to disappear little by little all around the world. It won’t happen dramatically for quite a while, but it will happen little by little, in turn. Governments are trying furiously to prop up the auto makers, so that is another factor, but largely they aren’t succeeding. Especially the Eurozone sees falling auto sales. Your wish will come true, Steve, the cars will definitely disappear. But then much of the food will disappear at the same time…….

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    1. steve from virginia Post author

      It’s a pretty avant-garde idea. So is no cars in the near future. The bosses are always behind the curve.

      1. Phlogiston Água de Beber

        Your soothsayers may have, perhaps out of politeness, neglected to mention that dissidents with plenty of money are sexy. Otherwise, not so much.

        It has been well understood at least since the glory-days of Sumer that lucre, filthy or not, is to sex what honey is to bears. Why do you suppose the Gnomes are so intent on stealing all of it? It takes a hell of a lot of money to make those creeps sexy.

        Now, the world makes a lot more sense, doesn’t it?

        Steve, you could go on waiting … or you could try stealing lots of lucre with, of course, the attendant risks … or you could watch lots of TV and shoplift everything they claim will make you sexy. That’s not likely to do much good, but what else have we got?

        All things considered, I recommend continuing to wait. 🙂

    2. Ellen Anderson

      What a great link! I am going to forward it to friends. But Idaho? The comments, other than Steve’s, are pathetic.

    1. Jb

      Cyprus, the Senkaku Islands and the Falkland Islands all have something in common. They all have multiple claims against the off-shore natural resources. The Bosses are looking to steal Cyprus’ before the Turks get any crazy ideas. The UK has military control over the Falklands. China, Japan and Taiwan are circling….

      1. steve from virginia Post author

        There are a lot of interlocking threads to this story, in a way it’s hard to keep track of them all. Every one is meaningful and any one of them would precipitate a crisis. Such as the decision some time ago on the Cypriots to become a banking center/tax haven. Is that nuts or what? Who came up with that bright idea?

        Don’t forget the Great Cyprus real estate scams … that have slipped under the radar. Cyprus being a banking center is a bit like Nigeria becoming one.

        The energy minuet is another, major thread: there is the relationship between Turkey and Greece and Nato and Syria, Nato and Russia, Germany and Russia … etc. Multiple claims … nobody is adult enough to sift through them and broker a deal that leaves everyone grudgingly satisfied. In the ‘good ol’ days’ the US State Department would be working on all of these issues, looking for agreements … instead we fly B-52s over Korea while they threaten nuclear war against us.

        I suspect most of the Russian funds that have been flowing into- and out of Cyprus banks and holding companies have been excess energy profits being cycled back to Europe. After all, there is nowhere else to go with euros … to spend them.

        I put the Number One blame on Draghi who miscalculated. He believed Mario Monti would win in Italy: what is happening now is fallout from the Italian election. He believed the EU managers would be able to squeeze Italian pensioners. He was left high and dry, needing someone — anyone — to squeeze.

        Number Two finger of blame would be pointed at Merkel who wants out of the sinking euro ship before it capsizes and leaves Germany without a paddle. Number three would be on IMF and EU who are both tone-deaf and insist that victims of bankster crimes be wrung out to pay for the damage. All this and more within the context of peak oil and diminishing supply … the need to allocate scarcity which economics is incapable of doing.

        Almost a year ago: from ‘Central Bank Failure …

        The flow of credit is from the central bank into reserve accounts at the Fed (not circulating currency). Reserves do not appear in the greater world unless there is demand for them in the form of redemptions/depositor withdrawals that exceed the requirements of ordinary, day-to-day business. A good example of this excess depositor demand would be a bank run.

        What the central bank has done is guarantee all bank deposits by offering what amounts to unlimited reserves.

        It’s not clear guaranteeing deposits is what the Fed Chairman intends to do. Bank runs are underway in Europe, China, Argentina and elsewhere. The reason is there are no effective lenders of last resort, the consequence of central bank over-promising/making unsecured loans.”

        Seems like what is taking place now in Europe was set in motion months ago … it’s likely Bernanke signed off on it.

      2. The Dork of Cork.

        But its such a small pie , its hardly worth it from a oil extraction viewpoint. (although their dependence ratio on oil is the worst in the Eurozone)

        However Cyprus resides on a political tectonic plate , ever since the Crusades , Masons , Venice & all that lark.

        In a world without oil (heating?) Med islands are pretty valuable pieces of real estate.

  10. Geo from Maryland

    “Only economists and bureaucrats believe that we never run out of inputs.”
    Thanks for finding this link of Ray LaHood on video! I was looking for it. There is also a clip online of NOAA Administrator Jane Lubchenco awkwardly fending off peak-oil questions from a student audience, but I can’t find it. If you know where it is, do put up the link…

    1. steve from virginia Post author

      I know what you’re talking about and I’ve seen the clip … mebbe I can find it.

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  12. The Dork of Cork.

    Irish Agriculture, Forestry and Fisheries contribution to GDP declined by 10 per cent in 2012………..

    Irish farmers don’t go on foreign holidays in the main – they hoard , save or spend their surplus in the local area.

    Much of the Irish economy is being kept afloat by growth in call service like jobs , much of whose workers are of a foreign origin.
    The question of negative labour remittances is never dealt within Irish economic papers , which is a curious fact as we were a beneficiary of such flows during the Sterling peg years and was under intensive economic study during that time…..with many marginal farmers kept afloat by the sons money from London & New York

    In a recent Irish state broadcast about the situation within Irish farming the entire show concentrated on EU farm payments.
    Not one mention was made of the farming intermediate consumption crisis which is subtracting from its contribution to GDP (imports)

    Irish post war farming was normally stable or growing part of a more rapidly expanding general economy.
    Now it is contracting !!!!

    This is of course the result of using a non optimum reserve currency for domestic production & commerce which prevents farmers from hiring labour to reduce input costs.
    In the above state TV programme nobody mentioned why farming was really subsidized by the euro market state beginning in the 70s
    The currency then forming within Europe was simply unsuitable for primary Industrial production.

    Now the subsidies are under threat yet the monetary environment is turning even more adverse.

  13. The Dork of Cork.

    Looking at end of year IEA gas & elec data.

    Portugal is imploding.

    2012 Electricity supplied vs 2011 : – 6.7 %
    This is a result of a collapse in Hydro power (low rainfall ?) and non replacement with Combustible fuels

    In contrast , its neighbour Spain has increased its combustible fuel & Nuclear production.
    2012 electricity supplied vs 2011 : + 0.8 %

    Also if we look at Portugal gas consumption ……
    Its down 11.3 %

    The albeit much larger Spanish gas consumption is down -3.2 %

    Meanwhile commentators lament the plight of Portuguese youth.

    It seems they cannot be employed in call center jobs and thus cannot game the last of the worlds energy supplies………….

  14. Ed

    This is a link to an Oil Drum essay by Gail Tverberg that spells out the same process that has been described on this site many times:

    There is data to back up the point. Historically, when real wages increased, oil prices were low. When real wages stagnated, oil prices were high.

    This is what you would expect for all sorts of reasons. The main inputs to production are labor and energy. The capitalists can pay for increased of one or another and make a profit. When energy prices are low, they expand production, which means hiring more labor. When energy prices are high, they maintain or lower production, reduce labor costs, and instead pay for energy.

    With less money going to labor, there are less consumers, so lower energy prices have the net effect of making everyone poorer as you would expect. Also, this is why labor saving machinery does not now ultimately expand production and eventually the labor force, since its use now is to maintain the current level of production with less labor, in order to free up capital to pay for the higher energy costs.

    However, I think the excess cash piling up in corporate treasuries is a sign that the strategy of squeezing labor to maintain current rates of energy extraction is overdone and unbalanced. Either that or cash is simply not worth as much as most of us think it is.

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