Default in Europe



The world’s economic enterprise is a tightly-coupled, massively complex array of interlocking establishments, each highly complex in their own right. The failure of one component effects all the others. The analog is removing a pinwheel from a watch: the watch will still appear to be a watch but it won’t keep time.

The relative scale of the European economic enterprise compared to Cyprus is the same as the gigantic balloon relative to the tiny pin … any hole the pin might cause has consequences to the balloon wildly out of proportion to its size.

The Russians can simply refuse to accept euros, they will accept only dollars, instead!

 
David Whitney House 1

The David Whitney house in winter, 1955, on Woodward and Canfield Street in Detroit, Michigan, from the Burton Historical collection, Detroit Public Library, University of Michigan. In our shiny new zero-sum post-petroleum world, some places succeed because other places are disposable. Detroit is the way Detroit is because New York City is the way New York City is.

Germany is the way Germany is because Spain, Portugal, Ireland, Greece — and Cyprus — are they way they are. The worse it is for them, the better it is for Germany.

There are references to Archduke Ferdinand and the cold war all over the Internet. Somewhere in abeyance the gauntlet has been thrown down. What is absent is any understanding of … why.

Bruce Krasting channels Barnum instead of Armageddon:

 

On the Circus in Europe

I’m flabbergasted that Cyprus is the cause of the circus in Europe. Cyprus was an avoidable problem in my opinion. That view is supported by the fact that all of the words, actions (and threats) by the deciders in Northern Europe have been decidedly negative. There was no “Can Do” talk. All I heard was, “We won’t do” or “Here is a deadline” – “Here’s a gun to your head”.

Two possibilities – Either this was a completely bungled effort in Brussels. Or this this was a deliberate effort to weed out the weak members of the EU. If the intent was the latter, this will not stop with little Cyprus.

Next week there will some broad confusion following the resolution in Cyprus. Either Cyprus is out of the Euro zone by Wednesday, or the +E100k depositors are going to get whacked big. There is no soft landing potential any longer. If the folks in Brussels and Berlin who are pulling the strings are really serious about stabilizing the Euro zone they will respond with a series of “positive” measures next week. Things that might be considered to ring-fence Cyprus include:

– Doubling the deposit guaranty to E200.

– Creating a Transaction Account Guarantee. This would insure all accounts that were related to the settlement of goods and trade. (protect the economy)

– Financial measures – From some minor stimulus stuff, to monetary measures like LTRO or a cut in % rates.

These would be “calming” steps. They would be proactive in that the intent would be to get ahead of any contagion. We could also see “nothing” from Brussels. That silence would be a “tell” that “they” don’t want to resist gravity any longer. The most significant sign would be if capital controls were established more broadly in Europe over the next few weeks. These will scare the crap out of folks, especially those in Spain and Italy.

 

If the EU was serious about managing the currency/credit flows there would be some discussion of the foregoing already. In fact there would have been discussions along these lines long before last weekend.

Instead there is noise about confiscating deposits in Italy and Europe-wide capital controls. In a currency union, capital controls are a death sentence. The ‘natural’ form of control is different currencies for each state. Under the condition of currency controls there are de-facto independent ‘euros’ with different prices for each. The next step — toward independent currencies — is a very small one.

What is underway is beyond the reach of language to adequately describe. Not only have best practices for deposit banking for 200 years been undone but so has long-standing management policy of money-capital flows across national boundaries. It can be inferred that every euro sent to Russia since 2000 has been a fraudulent instrument. Why would Russia sell more fuels to Europe under current uncertain circumstances? If the Russians do not accept euros, why would Saudi Arabia or any other oil producer?

 

 

Apoplectic Steve Keen says the Russians can cut off European natural gas supply.

Steve from Virginia says the Russians can simply refuse to accept euros, they will accept only dollars, instead! How retro! How … 1990!

Why would the Russians accept euros when they are subject to confiscation? Why would they accept French francs or Spanish pesetas? It’s the same bunch of thieves … the same bankrupt national economies!

The entire euro-as-energy-hedge is undone in an instant. By stiffing bank depositors, the EU has defaulted. There are no two ways around it.

The Chinese bosses are reaching for those Maalox bottles right now. China holds a trillion in euro-denominated debt instruments, so does Japan. Germany appears not to have thought this through. Regardless of what happens in/with the eurozone, Germany is on the hook for the overseas euro-trillions. Germany is the only EU country with money: it is responsible for all those Target 2 liabilities as well — this is another trillion euros. If not Germany, who picks up the tab?

Germany is declaring that overseas holders of euro currency are going to pick it up — starting with the Russians! Off the hook is the euro-establishment itself and its pet tycoons. High-level finance acumen is not necessary to understand how outrageous and destabilizing such an arbitrary action is: head-loppage was never part of the euro sales pitch! The euro was to be a ‘better, sounder’ dollar, always ‘good as gold’. Now, its fairy money, worthless in the hands of ‘not-quite-special friends’ who only discover they are so after the fact.

Exposure to currency derivatives presently denominated in euros is another liability. According to the Bank for International Settlements, the current derivative exposure including options and futures is twenty-four trillion euros. Who is on the hook for that? If the answer is ‘nobody’ then the entire edifice comes crashing down.

From here is looks like a lot of agony to come around the world: if Germany doesn’t default it is ruined by its ‘share’ of EU liabilities. If Germany defaults then China’s finance system is bankrupted along with Japan’s.

Don’t be surprised to see the European ‘bank run’ materialize over the next few weeks in the foreign exchange markets as countries seek to offload their euro risk onto suckers and market fools as quickly as possible. Unlike the bond and equities markets, F/X markets are difficult to manipulate. One reason is because they are too large: trillions of dollars and other currencies are exchanged every day. Who would volunteer to be the sucker? Not even the Fed is large enough — or dumb enough — to take over China’s or Japan’s massive euro positions.

Who is going to take over these positions? If the answer is nobody China and Japan — along with Russia — are left with with massive, instant F/X risk.

One outcome of this risk would be an increase in interest rates! Such a rate increase in the US and elsewhere would be very unpleasant: there would be instant hits to government spending as borrowing would become less affordable. Government bond holders would face immense losses. Eventually, the governments would be forced to bail out their bond markets simply to function!

Sacre Bleu! Capital flight to support the dollar and bond prices would only last as long as the euro was a viable currency. If the euro fails there is no readily available substitute for it. If Germany made good euro liabilities with d-marks … it would be for show only. The European euro-liabilities are simply too enormous. The end-game would be Germany refusing all non-German liabilities and restricting d-mark circulation to native Germans within Germany. Euro-credit everywhere would be re-denominated into (worthless) local currencies. There would be intense competition for international dollars, a massive deflationary contraction as these dollars vanish from circulation.

Believe it or not the Fed cannot ‘print money’. It can only make loans against ‘good’ collateral. The demand for US dollar currency would become overwhelming … Congress would have to act … in the highly complex, interconnected finance universe, the smallest perturbation effects everything else.

All of this could take place next month week! Look to the world’s money authorities to start leaning on the eurozone to put the genie back into the bottle. Matters could spiral rapidly out of control.

The motive behind this nonsense is presumably ‘bailout fatigue’: to spare the Germans the minuscule cost of keeping Cyprus banks functioning until after the German elections in September. There is no reason why the ECB could not continue to fund these banks by way of ELA and use the time to craft a solution that leaves depositors intact.

Export of petroleum consumption is the real reason behind the onrushing European default. When countries fail their allotment of petroleum is exportable. There is no substantial difference between the thievery underway in Cyprus and that in Libya or Egypt. Ultimately, all of Europe’s petroleum consumption is exportable leaving the various citizens in distress. The hope is to default on the small scale and hive Cyprus’ petroleum consumption toward the rest of Europe. With luck the default is contained and the losses in Cyprus can be offset by more affordable fuel elsewhere.

Cyprus is a test case. If the Cypriots can be jettisoned from the EU energy hedge then other countries can be safely ejected such as Spain and Italy. These countries can fend for themselves in the fuel-for-dollar market while the ‘core’ uses the hard euro to gain that fuel price discount and a guaranteed supply.

Europe’s strategy can only work if the euro-establishment is able to convince the Russians there are currency gains to offset depositor losses. The problem is that deflation follows its own rules: harder currencies cut into consumption which in turn presses the fuel suppliers. When customers hoard hard currency they do not buy fuel, the fuel suppliers go out of business. This is the reason why fuel prices have been declining since February.

 
Brent 032313
 

Figure 1: Brent spot crude from yCharts (click on for big). Along with consumption export is the recent rise in fuel price to near $120 per barrel on Brent market. $120 is the new $147: the fuel price is too high, there are the ugliest of all possible noises coming out of Europe …

Cyprus imports 95% of its fossil fuel energy. The euro- and euro denominated credit have been the means by which Cyprus could afford fuel and the thousands of cars needed to waste it. Cyprus earned exactly nothing by driving those cars: nothing remains to retire the multi-billion-euro debts taken on to facilitate the waste. Meanwhile, the country fashioned itself into a mercantile (banking) state so as to arbitrage fuel like Japan. Its banking products have now been deemed redundant and expendable to the European mercantilists. Cyprus’ arbitrage has been devoured by the greater European version. Cyprus was a poor relative to the rest prior to the euro, it is on the way to becoming a poor relative again.

What is occurring in Cyprus is destruction of purchasing power by administrative fiat: this is, conservation by other means. Cyprus’ consumption is exported, its citizens will drive less because they will have less money, what money remains will be hoarded. Fuel not purchased in Cyprus will be available elsewhere so that others can drive in the Cypriots’ place.

Right now it is clear that the establishment will sacrifice anything — good relations with other countries and peoples, economic stability and predictability and best financial practices — to enable automobile use.

– One casualty of default is the media-promoted pseudo-recovery in America and elsewhere. This farce is now a child’s fantasy that can be safely dumped into the trash. Economies that required more easy credit last month now require human sacrifices. Today Cyprus gets the Black Spot, next month’s fall guy is France. Who’s next?

– Bernanke could come up with the ten-billion-or-so euros needed by the EU and end the panic. If he was smart he would do so — very publicly — tomorrow morning. This would buy some time and allow a chance for a comprehensive … etc. round of can kicking.

– If there is an EU ‘handshake’ with Russia => Panic in Southern Europe => contagion and derivatives implosion. This does not have to happen, but avoiding it will require extraordinary efforts, that will cost much more than anything gained at Cyprus’ — and Russia’s — expense.

– If there is no handshake — which seems likely as the European establishment is incompetent — Default in Cyprus is part of generalized euro default => failure of the euro, contagion in China and Japan => severe worldwide recession => collapse of fuel prices and physical shortages.

– Right now, Europeans are busy, opening new bank accounts in Norway, UK, Miami, Panama City and even Switzerland … It takes time to set up yr bank run, there has to be a place to run to.

– The Cypriots are trying to figure out how to evade the capital controls sure to come. Russians are trying to figure out how to remove their funds … Greeks are figuring out how to emulate the Cypriots who in turn are reading about the Icelanders. There is a lot of scheming — and fretting — going on right now.

– Nobody on Planet Earth wants a Greater Depression, everyone knows the score, this is the ‘Big One’ and people have their game face on. If a crisis can be avoided with a small payment most people will make the payment and not complain. It is the analysts who are upset about the consequences of the past few days. Most of the analysts are wrong about which consequences matter the most. They are wrong b/c they ignore the big energy story right under their noses.

– Citizens generally aren’t libertarians and they don’t take ideological positions, they are flexible. Right now the system does not appear to be ruined. That it is indeed ruined has to be proven by events.

 
David Whitney House 2
 

The David Whitney house in Detroit in 2013. Out of the current wreckage some fragments will survive.

The only possible exit from currency death by energy strangulation is stringent conservation. Europe needs to cut its fuel bill in half right now. So does the rest of the world. This word ‘conservation’ is never mentioned, the conservationist is excluded from the management dialog. The conservationist offers options that are unhappy for the capital wasters. What the system managers refuse to understand is this: if nothing is done to conserve voluntarily there will be conservation by other, ongoing, extremely unpleasant means.

67 thoughts on “Default in Europe

  1. Ken Barrows

    Conservation by other means? Nah, Cyprus will just begin to extract (or talk about extraction) that 60 trillion cubic feet of NG. Because the elites are delusional, just count on a central bank save and promotion of alleged fossil fuel reserves.

    Cyprus won’t do it; Brent over $120 might. Over the last couple of years, TPTB have kept a lid on the oil and gasoline prices. They won’t indefinitely but probably will for a while yet.

  2. The Dork of Cork.

    Keen believes in double entry stuff also……………………hmmmmmm

    Its not just “Germany” doing this of course.
    The Troika includes the IMF.
    The IMF is the banks which control western treasuries period.

    They want natural resources to return back to their core base of banking operations.
    The days of getting a income yield by exporting oil to “growth” countries is over.

    See the change in UK balance of payments data in 2012 – income from the rest of the world is being sacrificed for real goods.
    A real game changer and something which to my knowledge never happened during the 30s.

    The Telegraph & Sunday telegraph is full of energy / gas stories these past few days as one of the coldest March periods in 30~ years bites hard into reserves which do not exist.

    http://www.telegraph.co.uk/topics/weather/9949709/Gas-rationing-inevitable-if-freezing-weather-continues-energy-experts-warn.html

    There was another Telegraph article today about the UK awaiting a vital last gasp LNG ship to keep the larger ship of Great Britain afloat !!!
    Also a deep analysis (by Sunday telegraph standards) of the energy situation in the back pages
    Some of which I agree with. (the UK simply failed to invest in Nuclear or even coal plants during the extreme monetarist years post mid 1970s /80s)
    But the Telegraph of course blames EU carbon policy which is only a very minor factor relative to the change in the monetary ecosystem over these years.

    Much of the med island energy consumption is discretionary.

    Its air conditioning in the summer & heating in the winter by people with surplus money to spend.
    There is a reason why you get a higher ratio of down and outs in Med Coast locations……….
    If you remain at a certain level of fitness you do not need the above.

    However Cyprus has many British pensioners which need more then basic survival requirements to well …….survive.

      1. Ken Barrows

        Ok, I’ll bite. Why it’s BS? Are you cherrypicking your data to show the world is rapidly cooling? Are you ignoring the most of the heating is going to the oceans? Ignoring the disappearing Arctic ice? Or forgetting that the global average surface temperature has been above the 20th century average for 336 consecutive months?

        Of course, everything is a matter of probability and it’s possible we can put an infinite amount of greenhouse gases in the atmosphere without any consequences. So, why can humans put an infinite amount in the atmosphere?

      2. steve from virginia Post author

        NOTE: Climate denier spam will be deleted automatically in the future and denier will be permanently banned.

  3. The Dork of Cork.

    OK lets say Berezovsky is bust…….

    No more money by his standards at least.

    What does he do or what does the British fear he will do ?

    Sell secrets ?

    If I were to put money down on this I would bet he was suicided by British intel.

    http://www.youtube.com/watch?v=HNvzNWuzI9Y

    These guys serve no purpose now.

    The risk is just too great when there is no possibility of reward.

  4. The Dork of Cork.

    In my opinion the strangest assassination in post war UK.

    Airey Neave 1979.

    It is generally understood the INLA did not have the capacity for such operations.

    British Intel is the oldest and most Byzantine of Intel networks.

    The man was going to clean out the stables !!!!!
    Maggie was a lost sheep after he died as he was her right hand man.
    She could then be molded into whatever shape the hidden powers desired.

  5. The Dork of Cork.

    To understand the hybrid nature of British nation / banking state history one needs to look no further then their flag.

    Prince Edward, Duke of Kent, supports this theory:
    “The St. George’s flag, a red cross on a white field, was adopted by England and the City of London in 1190 for their ships entering the Mediterranean to benefit from the protection of the Geonoese fleet. The English Monarch paid an annual tribute to the Doge of Genoa for this privilege.”

    http://en.wikipedia.org/wiki/St_George's_Cross

    What is the modern version of the Bank of St George to do now ?

    There is no more worlds to conquer

  6. steve from virginia Post author

    Examination of deposit insurance in Cyprus with a ‘scientific perspective’:

    http://www.finemrespice.com/node/126

    Frances Coppola looks @ presumed Cyprus money-capital controls and gags a little:

    http://coppolacomment.blogspot.co.uk/2013/03/the-broken-euro.html

    “But the Cyprus capital controls differ fundamentally from those imposed in the Iceland banking crisis. Iceland is a sovereign state with its own currency. Cyprus is a member of a currency union – the Euro. And capital controls make a complete nonsense of currency union.”

    1. The Dork of Cork.

      @Steve
      Its funny that the euro areas with the most heavy British cultural / economic influence are the most affected by the crisis / biggest drops in energy density.

      Its as if the British banking fiefdom has done a pseudo deal with the German banking fiefdom to sacrifice areas that will avoid major damage to their base of operations / olso known to nationalists as their homeland.

      Its stinks of 1914…………….

      Germany industrializes orbiting British global credit supply………the credit supply dries up……….
      Markets disappear.

      Tension builds.

      Then “they” decide to break stuff.

  7. Reverse Engineer

    Hey Steve, have you noticed Ambrose Evans-Pritchard hasn’t published ANYTHING about Cyprus? Chief Euro Shill for the Illuminati is SPEECHLESS! LOL. Every Pundit on the net has weighed in EXCEPT Ambrose. This indicates to me the Euroclowns don’t even have a Trial Balloon to float in the MSM.

    RE
    http://doomsteaddiner.org

    1. steve from virginia Post author

      RE, everyone is thrown for a loop. By tomorrow morning here on the East Coast, the so-called ‘current agreement’ which sacrifices Russian depositors might be undone and there is a new story line.

      More important than AEP, nothing from ECB boss Mario Draghi. Another silent notable is Ben Bernanke. The Chinese aren’t saying a word either.

      The propped markets are ready for a victory lap … Dow, 36,000 … I think such a thing is very premature.

  8. dolph

    Alright so the question becomes why is there a gap between the “establishment” and everybody else? Here are some possible explanations:

    1) The developed world has enjoyed peace and prosperity, with many of its people enjoying riches beyond the dreams of avarice for the past 70 years…the establishment cannot fathom that this is over or indeed that we are in a sort of final, blowout, decadent stage…the message is always “growth” and good times forever, to infinity and beyond…even talk of rebalancing is never quite honest, as that rebalancing is always assumed to lead automatically to better times

    Only the developed countries and the young know the score, because they are the ones who have to fight.

    2) The establishment are behind the times and forever playing catchup when it comes to the internet and the speed of information; they cannot control this force, and they don’t understand that it is different from newspapers and television of years gone by; the internet is currently democratizing information, which means no events or news can be contained; events are open to all and are interpretable by all; the establishment thought that nobody would care about Cyprus…where’s Cyprus? what is it? who cares?

    Well now everybody cares and information is available on thousands of sites, blogs, and even a quick visit to wikipedia and you can learn about Cyprus to your heart’s content.

    So news spreads, and little people, if they choose, are better armed to defend themselves now.

  9. Pingback: Default in Europe | Doomstead Diner

    1. steve from virginia Post author

      Monday AM: everyone is pretending everything is fixed and life can go back to normal.

      People WANT everything to be fixed so that life can go back to normal.

    1. steve from virginia Post author

      Rig counts in critical areas have been declining for awhile. It’s harder to make money as a driller.

      The big increase in rigs is in Africa and the Middle East. Increases in rigs is not necessarily a good thing IMO. Damned if you do — you need to drill more to keep up with declining play productivity. Damned if you don’t, no drilling, no oil!

      The Triangle of Doom is definitely operative. The only question for the moment is whether the recent ‘activities’ in Europe represent good policy choices. Too soon to tell.

  10. The Dork of Cork.

    Top secret now ?

    Monthly Review of External Trade Statistics

    “The MRETS publication has been discontinued. The associated (historical) dataset is still available as part of the UK Trade statistical bulletin and online time series.”

    http://www.ons.gov.uk/ons/rel/uktrade/monthly-review-of-external-trade-statistics/january-2013/index.html

    Can no longer witness British (record) silver movements…….
    How it is tapping into German & Chinese goods while destroying the capacity of the other euro consumers to consume.

    This is now very much zero sum game dynamics and very very serious.

    1. steve from virginia Post author

      Looks like a nursing home. @ $20 mil it would be cheap.

      The area = lots of tear-downs, parking lots, cyclone fences. Very … Detroit!

      1. enicar666

        I discovered that my local library has some of Joseph Farrell’s books. It’s great stuff and recommended reading. I’m reading Nazi International right now.

        What are they doing at CERN – and what does the discovery of the Higgs-Boson mean for the future? It seems likely that it is a continuation of Die Glocke experiments and Germany may possess powerful Scalar and Zero-Point energy technology – making Petroleum obsolete. <Die Glocke was considered WAR DECISIVE and the organization Martin Bormann put in place for the continuation of the NAZI Party has paid off.

        For a fascinating alternative view of mankind’s history and what is going on in space, watch Curiosity’s Stealth Mission. “Star Wars” may be much more than fiction.

        In Today’s tabloid “World News” you have to see the video of the Dogman and the “Entity”, perhaps a fabled Forest Person! My friend saw a Dogman near Delavan. There have been many sightings in SE Wisconsin.

    1. steve from virginia Post author

      – These countries are trapped within currency exchange mechanism b/c of their gigantic F/X holdings. If they don’t have the holdings they are broke.

      – The cost of managing these holdings is ruinous in and of itself, because they are so large … Steve’s First Law.

      Everything now seems to be two choices, both bad.

      1. Jb

        Thanks for the reminder, Steve. Here’s J. Rickards this AM via Twitter:

        “Every deal done in #CNY #BRL #RUB #ZAR or #INR is one less deal in #USD. That’s the inexorable logic of #BRICS. Not replacing $; eroding it.

  11. The Dork of Cork.

    Tramway Jaen to be sold or folded ?

    It would obviously save precious liquid fuel (to be burned elsewhere ?) but the present monetary system demands that it be burned.
    At present euro cost they can still burn liquid fuel via idling cars in the centre of Jaen and not pay for this labour. intensive system.

    http://www.railwaygazette.com/news/urban-rail/single-view/view/jaen-light-rail-line-to-be-sold.html

    Such is life
    Such is death ….or is it debt ?

    So for this to work they must find a company which can pay labour less.
    But who will then pay the debt ?
    Labour if they sacrifice healthcare and high quality food.
    Labour becomes less effective…….
    Find more labour.
    Destroy labour
    Find MORE

    Euro fiat is the darkest monetary spawn ever created.

    1. steve from virginia Post author

      The WTI price spread w/ Brent is narrowing. More and better transport means fuel in Cushing flows to the USA Gulf instead of bottlenecking at Midwest refineries.

      Higher prices are good for drillers and producers of high-cost bitumen. Higher prices are a hit on refiners whose customers are no less broke.

    2. Jb

      Egads! Back that chart out to ‘weekly’ and connect the tops of March 2008 and February 2012 and it looks like $100 /b is IT.

      “Our wish and hope is we can stabilise this oil price and keep it at a level around $100”, Mr Naimi told CNN television. “If we were able as producers and consumers to average $100 I think the world economy would be in better shape.” – Ali al-Naimi, Saudi Oil Minister
      http://www.theglobeandmail.com/report-on-business/international-business/saudis-target-triple-digit-oil-price-for-the-first-time/article620773/

      1. steve from virginia Post author

        The squeeze is definitely on, particularly in deepwater and tight plays. Even if the Midwest prices rise to world levels, the quality of the plays continues to decline so the costs increase.

        Some of this might be offset by tighter dollar/less pricey overseas crude.

  12. steve from virginia Post author

    Interesting tack taken by Dutch in SNS-Reaal bailout. Junior creditors lose both their money AND their bonds!

    http://www.economist.com/news/finance-and-economics/21573621-big-losses-have-little-effect-market-subordinated-debt-how-many-one-offs

    Good article by Charles Hugh Smith about the US dollar and its role within the international scheme of things.

    http://charleshughsmith.blogspot.com/2013/03/the-tailwinds-pushing-us-dollar-higher.html

    Flight out of euros is not exactly a new phenomenon. Current mismanagement of the euro does not help:

    http://www.mdbriefing.com/peak-euro.shtml

    Telling us what we already know by looking outside: vehicle miles in the US have declined to levels seen last in … 1995! A few more such declines and the vehicle mile-dependent businesses will be bled out, dead on the ground:

    http://advisorperspectives.com/dshort/updates/DOT-Miles-Driven.php

    Incoherent article by Mark Grant @ZeroHedge v. EU and Cyprus. The gist is that large depositors are pulling euros out of Cypriot banks by way of Greek branches. The locals are stiffed (of course):

    http://www.zerohedge.com/news/2013-03-27/we-are-not-making

    At the end of the day the Cypriots will be robbed and indebted to the rest of the EU by billions … for the privilege of being robbed!

    Ed Dolan discusses Cyprus … another take from a banking perspective:

    http://www.economonitor.com/dolanecon/2013/03/22/bailouts-bail-ins-haircuts-and-all-that-program-notes-for-the-cyprus-banking-drama/

  13. Jb

    C.H. Smith article was very helpful. Conclusion: the Fed will keep expanding it’s balance sheet as required to off-set the declining value of the yen and euro / increasing value of the dollar. This balance is necessary to keep the US in a permanent trade deficit and keep liquidity in financial markets abroad (Triffin’s). This is why BRICS can play together in the sand box all they want without causing too much concern over at the swing set.

    However, with a 2% decline in production from international oil companies, how long can this strategy work? As production in Iraq fails to meet IEA expectations and the Bakken is economically played out, the rate of decline is going to increase quickly (unless, perhaps you can strangle off demand at the same rate). At some point, the value of the Fed’s assets have to come into question and the system unravels. Does the Fed go super-nova and leave us in a global banking holiday?

    Lagniappe: had to look that one up!

  14. The Dork of Cork.

    Northern Ireland (which functions as a control for the South) transport data (especially rail) continues to be in better shape then the south which needless to say has imploded on a biblical scale.

    http://www.drdni.gov.uk/ni_road_and_rail_transport_statistics.htm (published 28 March)

    This is combination of fiscal transfers and more optimal monetary conditions no doubt.

    For the first time NIR has carried more then 3 million people in a quarter (3.01 m Oct – Dec) despite the Derry line being closed during that time

    “Weekly average rail passenger journeys have increased by 5% from 0.22 million to 0.23
    million since the corresponding quarter of 2011 (Table 5.4, Figure 5.1).
    • Weekly average rail passenger miles have increased by 6% from 4.09 million to 4.32 million
    since the corresponding quarter of the previous year (Table 5.4).
    • Compared to the same period in the previous year, the weekly average rail passenger receipts
    increased by 9% from £0.66 million to £0.72 million (Table 5.4).”

    1. steve from virginia Post author

      Asset quality deterioration is the reason. Too much ‘bubble’ and not enough anything else. Bankers believed the assets were really worth something when they weren’t … they’re worth less with each passing day.

      This is a consequence of ‘extend and pretend’, hoping that another bubble would emerge and bailout the banks’ balance sheets. Waiting … waiting …. wait some more … meanwhile, the ability of borrowers to service or retire their debts steadily deteriorates. Add to this the increased costs of petroleum fuel and … you come to the point where finance as a whole is has run out of sources for funds.

      I suspect anyone with cash in this world is looking for alternatives to bank accounts. It’s a (needless) contest between ordinary citizens and the establishment, to see who can outwit whom.

      1. christiangustafson

        Egads! This sounds like the Deflation.

        I always loved how the Fed has had “inflationary expectations” as their goal. Not “inflation”, per se, but “expectations”.

        Everyone keep shopping!

        Irv Fisher bitchez!

      2. steve from virginia Post author

        The establishment is at the point where all of the deflation ‘cures’ actually amplify deflation.

        That bank run sure to come in Europe is not going to help.

  15. The Dork of Cork.

    The excellent quarterly British energy trends publication out now.
    looking at the final quarter of 2012 and summing up the disastrous energy situation in the UK.

    The main points for 2012:
    1. Total energy production was 10½ per cent lower than in 2011.

    2 . Imports in 2012 were at a record high, with exports at their lowest level since 1989. As a result, net import dependency climbed to 43 per cent, its highest level since 1976

    3. Oil production was 14½ per cent lower than in 2011, the lowest annual production volume since our current reporting system began.

    4.Natural gas production was 14 per cent lower than in 2011, and at the lowest level of production since 1985

    5. Coal production was 10 per cent lower than in 2011, and at a record low level. Coal imports
    were 37½ per cent higher. Generators’ demand for coal was higher by 31 per cent. Coal
    stocks were 18 per cent lower, and at a record low for the year end.

    However the UK is consuming more (mainly lower quality energy – imported coal)

    6. Total primary energy consumption for energy uses rose by 5 per cent. However, when adjusted
    to take account of weather differences between the fourth quarter of 2011 and the fourth
    quarter of 2012, primary energy consumption fell by ½ per cent.
    • Final energy consumption was 6½ per cent higher than in the fourth quarter of 2011. Domestic
    consumption rose by 19½ per cent, with average temperatures being 2.3 degrees cooler than
    2011. On a seasonally and temperature adjusted basis final energy consumption rose by ½ per
    cent.

    Refer to the special feature near the bottom of the publication – “Coal in 2012”

    See chart 1 in particular.
    Coal only began to be imported in the UK after 1970…………..

    1. enicar666

      DOC – All may not yet be lost.

      Oil giant ExxonMobil kicks off a $160m-plus (€125m) drilling programme off the west coast of Ireland this weekend with hopes that confirmation of major fossil fuel reserves will transform the country’s economy.

      The US company is planning to drill test wells over a four-month period at two prospects at the Dunquin licence area in the Porcupine Basin, 200km off shore.

      Previous data has suggested that there could be over 300 million barrels of oil and 8.5 trillion cubic feet of gas between the two Dunquin prospects.

      If they could be proven and then extracted, such finds would mark one of the biggest ever global discoveries of oil and gas and be a game-changer for Ireland’s economic fortunes.

      The port of Cork is also hoping that it could become an epicentre for Ireland’s oil-and-gas industry if offshore reserves are proven.

      1. steve from virginia Post author

        If the oil reserves hold up … and if they are held by Ireland only … if the Irish get rid of their cars … they can get some use out of that oil.

        However …

        Europe consumes 15 million barrels of crude per day. That reservoir represents 20 days of European consumption. Not starting tomorrow but five years from now … The Irish won’t get rid of their cars … They will sell the oil because they would rather have (paper) false promises. The field will be depleted in a very short period leaving the Irish with nothing.

        Same with the gas. It’s a pittance and Ireland cannot afford even now to import LNG like the Britons. They have to keep it for themselves and hold it closely, not use it for industry or transport. They can get a long period of use from it.

        The proviso with both fields is that there isn’t the instant depletion rates seen in other deep-water fields.

      2. The Dork of Cork.

        @Eincar 666

        Well , the domestic banks will not produce much credit this side of the coming dark age.
        Even if we produce oil & gas who will burn it then ?

        Our role is to remain in surplus to deficit countries otherwise the master countries cannot remain in deficit right ????

        The true master of the eurozone is asserting itself and it ain’t even in the eurozone.
        ACEA
        “Two months into the year, Germany (-9.6%) and Spain (-9.7%) performed similarly, compared to the same
        period a year earlier. France (-13.5%) and Italy (-17.3%) recorded a double-digit downturn, while demand was
        sustained in the UK (+10.3%)”

        As I have said before given our subservient nature the best we can hope for is a devaluation against Sterling so that our surplus policy can be more sustainable.
        We may even get nodes of economic activity with enough critical mass rather then the broad destruction as seen in all Euro countries.

      3. Mirabilis2000

        “The true master of the eurozone is asserting itself and it ain’t even in the eurozone.”

        @ Dork of Cork.

        Could you please explain who you are referring to here.?

        Im just a newly awakened prole trying to make sense of all this.!

      4. The Dork of Cork.

        @Mirabillis
        The UK and to a lesser extent France.

        If you look at EU trade the UK remains in extreme real goods trade deficit with the Eurozone and EU.
        If you think of this crisis as a repeat of 1914 well then the eurozone is the modern trade surplus India of 1914.
        The jewel in the crown.
        If you observe UK balance of payments data it seems to have reduced its income (running oil through the construction projects of Ireland & Spain & getting a yield) for real manufactured goods from Germany with whom its trade deficit is increasing.
        A deal seems to have been done between the North Sea powers to cut off the south so that they can continue to live a industrial life.

        North Sea trade is in the vital interests of the UK , Norway (oil & gas) & Germany (finished goods) forms the bulk of the UKs trade deficit alongside China trade which is however decreasing these past few years.

      5. Jb

        DoC said: “A deal seems to have been done between the North Sea powers to cut off the south so that they can continue to live a industrial life.”

        Now that’s an interesting idea. Cut off the non-productive extremities and seize their assets to keep the core functioning.

      6. steve from virginia Post author

        That’s what it looks like on the surface but the North is just as vulnerable to credit constraints as the South. None of the euro-countries can simply issue euros … and still pay by the euro-rules. Without new currency these countries can only borrow and increase their debt burdens … which in turn makes it more difficult to borrow.

        Meanwhile, the North cannot export or exports less. In a way, the extremities can survive a credit cut-off better than the Northern countries. We shall see how this plays out with time, but Germany and the rest are as bankrupt as Greece IMO.

      7. The Dork of Cork.

        @JB
        Well from a purely physical perspective Spain is in a better energy position then the UK long term.
        Non productive is a relative term

        But that is of course not important.
        The banks base of operations is in the city.

        They had no problem destroying domestic primary & secondary industrial labour within the UK during the 70s & 80s so as to transfer domestic surplus income to capital holders and thus stimulating service industries but they cannot burn their base of operations completely down without consequences.

        UK income data from the rest of the world and what is the real significance of its massive decline (especially in Europe) ?

        Y2011 : £ 25,871 million
        Y2012 : £ 2,127 million

        remember these are not hyperinflated claims.
        This is the real yield from these hyperinflated claims.

        Remember in Q1 2008 its income yield from the rest of the world reached a record £14.1 billion.

        POP
        This is when RBS type operations came to a end.

        In my opinion the UK is now choosing real goods over income from the rest of the world (especially Europe)

        This is a very big deal me thinks.

        Also if a country went through this turnaround things in the country would get very bearish unless it could externalize the losses.

        British trade ( fuels) surplus / deficit.
        Y2000 : £ + 7,041 million (peak)

        Y2003 : £ + 4,262 million

        Y2012 : £ – 21,624 million

        Thats a swing of over £28 billion + !!!!!

        It must get fuel from outside its political (but not economic) hinterland which means less for us Euro commies.

  16. The Dork of Cork.

    The IEA March oil market report is available to the public for some days now but its monthly update of charts for each countries oil demand still remains in that Feb 2013 point………
    Strange.

    We could be getting to the stage where critical real world resource usage info goes off line for us plebs.

    1. Geo from Maryland

      The bit about Homeland Security telling banks that it has the authority to open safety deposit boxes and seize contents has been debunked by Snopes, but the rest of the article seems solid. The joint FDIC-BOE paper is a pretty good indication of where our bank deposit “insurance” system is headed…

  17. The Dork of Cork.

    Things are not going well for the Casablanca tramway.

    Apparently ever day there is a incident of some kind , sometime serious and deadly.

    A Aprils fools crash with a Lorry.

    http://www.youtube.com/watch?v=YJxXd2hZ9F0

    I am becoming amazed that the European based banks are allowed to create a grossly unsustainable boom /bust in NW Africa after all that has happened in Europe.
    Why create another Spain ?
    Whats the point of this ?

  18. enicar666

    Dr. Joseph P. Farrell

    NAZI International Part 1

    NAZI International Part 2

    In light of recently declassified WWII documents did the Germans have the physics for fusion and the ability to control it? Did the experiments continue in Argentina? Will the Eurozone give rise to the 4th. Reich with advanced weapons based on hyper-dimensional physics?

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