William Bouguereau ‘Pieta’
“Why so hard?” the kitchen coal once said to the diamond. “After all, are we not close kin?” Nietzsche.
The mind recoils at the irony that the instrument by which our empire will destroy itself will be its own currency.
Priced in oil the dollar is worth something.
Since oil is obviously worth something – modern economies cannot function without it – its granting of value to the dollar is troubling.
Europe appears more and more to be locked in its economic death spiral.
Asian bond risk gauges jumped the most in almost two weeks after Hungarian officials roiled global markets by comparing the nation’s finances to Greece.
The Markit iTraxx Asia credit swap index of 50 investment- grade borrowers outside Japan rose 12 basis points to 148.5 points in Singapore, according to Deutsche Bank AG. That’s the most since May 25, prices from CMA DataVision in New York show. Japan’s and Australia’s benchmarks also climbed.
“European sovereign fears were very much in focus again,” National Australia Bank Ltd. analysts led by Michael Bush wrote in a note to clients. Hungary’s government “later downplayed the comments as exaggerated, but the damage had been done.”
Crude oil for July delivery has dropped 6.1 percent since closing at $74.61 a barrel on June 3, the biggest two-day decline since May 6.
Bond spreads are widening everywhere. Credit is being examined and found wanting against the cash dollar, which is worth something …
The dollar/crude relationship indicates the world is rapidly going broke, not that there is a lot of new oil out there ready to be shipped.
As Europe slides the Chinese will lose another pool of customers. How this will help China service the debt it has taken on over the past two years is hard to tell. Part of the decline in oil price is the realization that China, too … is going broke.
At some point the next phase of the dollar/oil metric will play out. Dollar preference is taking place in the foreign exchange markets. Next, the preference will be felt in the short- term money markets. Liquidity will become harder to gain. This will be where central bank issuance of new money – euros, most likely – will stimulate runs on money markets.
Outside of last resort supply of liquidity, the central banks have done all they are willing or able to do to support the unsupportable markets and Ponzi payoff schemes. As pointed out elsewhere on this blog, the Federal Reserve is assisting finance insiders to convert illiquid securities into cash. Those with connections have already ‘cashed out’ while the rest have been patiently waiting in line for their turn. Traders have been anxious not to rock the boat … as long as markets generally rose the ability to launder securities into cash was an effective procedure.
With the mother of all exogenous shocks effecting markets, the ability to trade securities for funds is becoming limited. Those who previously were willing to wait for their opportunity to cash out are now becoming anxious. The appearance of new money in the markets, instead of restoring confidence, will likely provoke a panicked response and any new money will likely be quickly claimed. Those without will panic.
In this light, the ECB’s willy- nilly purchase of sovereign bonds since the IMF panic of a few weeks ago is playing with fire.
It also illustrates the emptiness of the central banks’ tool boxes.
Dollar preference compels the French to put lipstick on the falling eurp pig:
PARIS, June 4 (Reuters) – French Prime Minister Francois Fillon said on Friday he was not concerned by the decline of the euro against the dollar, saying the previous higher exchange rate had damaged French exporters.
“I have not changed my position for years. With the President, we were complaining about the fact that the level between the euro and dollar did not correspond to the reality of the economies and was strongly handicapping our exports,” he told reporters at a news conference.
“Therefore, I have no worries regarding the current rate.”
No worries? I recommend you panic! What does Europe export? Vacations, hotels, grand tours? Automobiles?
Just what the world needs more of right now is more cheap European automobiles. Unfortunately, previous exports of cheap Euro cars has thrust the entire continent into the currency jam it finds itself in. Euros priced in oil will become a lot cheaper than dollars – the oil exporters will spurn the euros and demand dollars instead. Says Mike ‘Mish’ Shedlock:
Iran Sells Euro Reserves for Dollars
With all the talk a year ago over pricing oil in Euros, this headline sure has me laughing: Iran Selling 45 Billion Euros of Reserves for Dollars
Iran’s central bank began the first phase of the 45 billion-euro ($55 billion) sale of some of its reserves for dollars, the state-run Jaam-e-Jam newspaper reported, citing people it didn’t identify.
The bank is selling 15 billion euros in the first of three stages, which will be completed by Sept. 22, the newspaper reported on its website on May 31.
Iran will “substantially” decrease its oil sales in euros, the paper said. It informed Japan and other crude-oil customers of the change, Jaam-e-Jam said. The Persian Gulf country’s euro reserves are 55 percent of the total, and would be reduced to 20 to 25 percent after the sale is complete and after oil sales in euros have been reduced, the paper said.
Iran’s shift out of euros has been prompted by the single currency’s decline, said Jaam-e-Jam, which is owned by the state broadcaster. Other central banks, including those of the Persian Gulf states, also are selling their euro reserves, it said.
How do you spell ‘energy crisis’?
Selling euro reserves is the dollar preference in action. This is the beginning. As the preference is self- reinforcing the tilt of the euro will slip outside the bounds of simply a devalued currency to a non- currency.