The Ireland ‘bailout’ was announced yesterday and it is as ugly as anyone could have expected:

Ireland Wins $113 Billion Bailout as EU Ministers Seek to Halt Debt Crisis

James G. Neuger and Stephanie Bodoni (Bloomberg)

European governments threw debt- strapped Ireland an 85 billion-euro ($113 billion) lifeline and scaled back proposals to saddle bondholders with losses in future budget crises, seeking to reverse the market selloff menacing the euro.

European finance ministers backed a Franco-German compromise on post-2013 bailouts that watered down calls by German Chancellor Angela Merkel for investors to be forced to take losses to share the cost with taxpayers. The ministers agreed that a future crisis-management system won’t automatically cut the value of bond holdings, easing away from a proposal that led investors to dump assets of Portugal, Spain and Italy.

The analysis is backwards as usual. In our theater of the absurd, puny Ireland bails out the Eurozone. What is clear is that the bankers hold the world by the throat.

Bondholders have taken the European economies hostage as they have in the US and elsewhere. They insist on continued payouts @ par or they will flee the finance structure en- mass to cause its collapse. To prevent this the Establishment buys off finance @ par with money that must be repaid by the productive economy. This in turn sags under the dead weight of finance obligations it was never meant to carry.

Ireland had little choice but pony up, being the subject of both bank runs and intense EU pressure to ‘accept’ the bailout that Dublin insisted until last week it did not need. You know … money changes hands, other hands are wrung and … nothing positive happens to confront the energy and resource waste that all that money enables. We pay for future waste with credit and pay for past and current waste along with the consequences of the past and current waste which was also paid for with credit … no wonder there is so much unserviceable debt!

As Ireland awaited the fine details of the international bailout, which are expected tonight, it was learned last night that the Irish delegation negotiating with the EU-IMF last week raised the issue of default.

“The Europeans went completely mad,” a senior government source said.

Government sources have also denied an RTE News report on Friday that the average annual interest rate on the €85bn EU-IMF bailout would be 6.7 per cent.

Irish pensions will be sacrificed to EU bankers:

THE main condition attached to Ireland’s €85bn rescue package is that the State must put €17.5bn of its own money into the fund.

It will get this money from the National Pension Reserve Fund (NPRF) and from its cash resources.

The NPRF currently is worth €24.5bn and the managers of this fund will now have to sell off the property, share and private equity investments held in the fund.

The requirement for Ireland to put its own money in is just one of a series of stringent conditions insisted upon by the EU and IMF..

The bailout is both too large and too tiny. The €85 billion committed is beyond the ability of Irish workers to service.

At the same time, Ireland represents more than a busted real estate bubble. It’s finance sector exposure is ten- times greater than its GDP. Ireland is a tax haven- cum- money laundry for the EU and multi- national corporations. Ireland’s GDP is € 220 billion- ish which makes its finance exposure in the neighborhood of €2 trillion, according to Wolfgang Munchau and Raphael Cottin: 

Ireland’s gross external debt is 1000% of GDP. Ok, Luxembourg’s is 3000%. This is what you get when you have a large financial sector in a small country. But gross external debt is not an entirely meaningless indicator, especially not if the wealth of some of the entities in the host country depends greatly on the host country not going bust.

The bailout is a poison pill, an invitation to default:

Ireland is in a different league than the others. Unlike Portugal, Ireland could bring the house down, and that will still be the case, once Ireland’s insolvency is fully realised and understood. A breakdown by countries shows that Germany and the UK are most exposed to Ireland, Spain to Portugal, and France to Greece. If the periphery goes, the European banking system will have its own subprime crisis – in addition to the actual subprime crisis.

Since  the bailout is too small the bondholders are still holding their noses. German and French banking CDS spreads widening. Attempting to bail out the bondholders is becoming impractical. It is ruining even the solvent bailers.

Default is going mainstream in the media. The next step is the thing, itself! Irish opposition parties oppose the bailout. The likelihood of an Irish default increases by the day.

Charles Hugh Smith joins the list of pundits demanding the Irish to show some spine and opt out of the bail.

Speculators must be held accountable for their gambles. The best way to hold a gambling banker accountable is to require he lose all his money on bad bets he himself makes. The proposed rape of the Irish taxpayers for the benefit of the bankers has the latter overplaying their hands. Once the costs of the bails exceeds the costs of default, the latter is inevitable. The markets are made up of rational participants, right?

Right?

The only possible solution to this entire crisis is restructuring of the finance sector(s) and energy conservation. There is no other working solution.

Meanwhile, shortages of diesel fuel in China call attention to the shift in money system dynamics from allocation of resources by cost to physical allocation. There is indication that selling diesel fuel in China is unprofitable. Where have you read this before?

Here’s China’s People’s Daily: 

Diesel shortage spreads throughout the country

The diesel shortage in many provinces and cities has not been relieved. Instead, it is getting worse. According to Economic Information Daily, many institutions on Nov. 15 said the wholesale price of diesel continues to remain above 8,000 yuan a ton, with the price in some remote areas standing close to 10,000 yuan a ton. The wholesale price is dropping far away from the retail price.

“In only one or two weeks, the diesel shortage which was originally only in east and north China has already spread to the whole of China. Diesel prices across the country have increased generally, which has led to a phenomenon of high prices but no sales. The diesel price in some remote areas in southwest China and Sichuan has increased to 8 yuan a liter, equivalent to 9,500 yuan a ton,” said Liao Kaishun, refined oil product analyst from C1 Energy Company.

Zhong Jian, chief analyst at oilgas.com.cn, said given the disparity between the wholesale price and the retail price, gas stations will lose money if they sell diesel. Some gas stations even lost more than 600 yuan a ton. Therefore, many gas stations have chosen not to sell or sell less diesel fuel. Almost all private gas stations have stopped supplying diesel because they cannot bear the losses.

Magnify this phenomenon across the length and breadth of the world economy and you have the current ‘credit’ crisis. Up to now the world has been able to hide the shrinking profit margins behind the scrim of money velocity and credit flows. With deceleration in the economy, its inability to create profits in the grandest sense is exposed for all to see.

Meanwhile, many have asked me in the light of above what individual steps they should take to prepare. Since this is an exhaustive topic and highly speculative at the same time what follows is a fairly simple list of steps. Two things about these steps: a) they can be done by anyone, and b) I have done most of these myself and they work.

… The first and most important step is to get out of debt by any means necessary. Sacrifice any and all ‘creature comforts’ to pay off mortgage debts, credit cards and close accounts. If necessary, call the companies yourself and negotiate a reduced payoff balance. You don’t need to hire an agent or credit consolidator to do this, in fact all these entities do is call the companies and negotiate a payoff balance.

I will leave to you whether to default on mortgage debt. Consult with an attorney. Keep in mind that no economic ethic entities anyone to a free house.

Pay off credit cards, consumer debts and student loans … by any means necessary. If the European situation gets out of hand there will be severe market repercussions world- wide as the implication will be that loans are noncollectable. The credit unwind will accelerate. This is deflationary. This will mean both a deflationary ‘premium’ added to the value of any outstanding debt. It will also make creditors desperate to find funds from any and all sources, including you! This in turn makes you- as- a- debtor very vulnerable. Escaping the ‘system’ at this point will allow you to avoid most of the pain that is to come.d

… Be thrifty! Don’t buy what you don’t need. Opt out of ‘consumerism’ and become a person rather than a consumer. Once you are on the road to being debt- free don’t turn around and get back into debt. If you need to buy something, pay cash for it. That means a house, land, business, anything. Debt is your enemy and thrift is your friend. Don’t buy the ‘paradox of thrift’. Escaping the paradox by spending is the basis of the waste- based economy. Start a new economy @ home all by yourself by pretending to be Ben Franklin.

… Since this is an energy crisis rather than a finance crisis per se, the obvious next step is to get rid of the car. This is fiendishly difficult in the US where all distances are vast and commerce’s ‘last mile’ solution is your car. Be that as it may, you must try as hard as you can.

Getting rid of the car saves almost $5,000 per year and more. If you have multiple cars, get rid of all but the most economical. Get rid of all SUVs and giant pickup trucks.

Buy a bike. A nice bike can be had for a few hundred dollars. A new car will cost tens of thousands. You need the money more than does the banks, auto and energy companies.

… Throw away the TV! I did this in 1994 and never looked back. The entire purpose of television is to allow marketers to tell you how much you suck. Get rid of it, get rid of video games, cable and satellite- and movie services, online entertainment and everything else that does not provide a positive cash return. It’s time to get serious about what you are about, that leaves no time for TV.

… Become a vegetarian. First of all you save a lot of money by not buying meat. It’s also good personal environmental policy. It is also a good step toward gaining control of your health. Don’t buy fast food such as hamburgers or pizza. Don’t buy wild caught tuna or swordfish or other large fishes, either. Putting industrial agriculture out of business simply means deciding not to be a consumer of industrial ag goods and services.

… Learn how to use your hands, to become practical and useful. Being able to fix simple leaks and electrical problems makes you useful to others. You will have something to trade.

… Don’t do business with predatory companies! Avoid sweat- labor outlets like Wal Mart and Target. Avoid banks that are part of finance such as J. P. Morgan- Chase and Citi. Use local banks or credit unions, instead. Keep in mind that all banking is inherently risky. Bank deposits cannot in total be effectively guaranteed. This sort of blanket guarantee is now bankrupting Ireland! It will also bankrupt the US. There are many steps between the current point in time and the point of US banking system breakdown. All banking failures are forms of robbery. However, there is much to steal upstream of banks before the banks themselves are thrown into the fire.

At the same time, the ‘finance’ banks will be allowed to fail, there really is no choice at this point as the costs of continued support is breaking the sovereigns.

Some sort of guarantee will be made to depositors at the giant banks. Deposits above a certain large amount will be stranded if the depositor is not nimble. This was an issue when Bear- Stearns and other banks failed as many depositors had large payrolls @ bank accounts that were becoming more vulnerable by the day. This dynamic is likely to take hold again.

At the point of system failure the short- term money markets will become illiquid. Banks without their flows of cheap funds will start dumping assets to raise cash. This dumping process will reveal the assets’ worthlessness. Due to the magic of electronic transactions and instant settlements, large deposits will vanish instantly as bank insolvency is exposed. A large depositor will not have the time to push the button on his mouse to transfer his funds to another bank. His finger will be too slow!

To cope, prepare in advance and break deposits down into smaller amounts and diversify between several banks. While the large banks are zombies, many smaller banks are healthy and can be more so if their subsidized gigantic competitors are evaporated. These banks CAN be safe havens for depositors. Banking interconnectedness is a hazard here. What you don’t know is a bank’s counterparties.

… Stay liquid, avoid real estate ‘investments’, stocks, bonds of any kinds; be careful with derivatives. This includes gold which is both a derivative and not liquid. If you trade, do so responsibly. We are in a long- term bear market in almost all things including many commodities. Don’t be a hero. It is very difficult to thrive in bear markets even if you are a professional trader. The markets have ‘features’ that are dangerous to short- sellers. Remember, there are no hedges against deflation. Don’t try to prove me wrong. You will lose!

… Get involved. Since you live somewhere, go to town council meetings and ask questions. Look for others who are becoming aware of what is happening around them. Consider running for public office. The onrushing crisis cannot be addressed by apathy or business as usual.

… Take care of yourself. You are your own best and least expensive doctor! Don’t sit in the car or in front of the teevee! Walk. If you cannot because of distance, move somewhere you can get places by walking. Walk more, eat healthy food — which means vegetables — and stop using drugs. Get your vices under control. By doing so, you eliminate a vulnerability. It’s also easier than you might think.

… Escaping the grip of chronic disease and medical institutionalization is hard in America. it’s a big business and the food system is a feeder to the medical business. Many chronic conditions are environment, food- and exercise- related. ‘Treatment’ of diseases such as diabetes and emphysema are very costly to the economy which increases the burden on individuals. Taking care of yourself is another step toward ‘opting out’ of a broken economy.

… Get rid of the junk! This is harder than it seems because there is so much of it. If you haven’t used something in a year, sell it on Ebay or give it away.

… Finally, there is a somewhat romantic notion of ‘self- sufficiency’ which implies living as a survivalist in the country growing your own food in splendid isolation. This is impossible. If you try to do this you will fail and do so at the worst possible time. Becoming a gardener is a nice hobby but is also a waste of time that can be spent doing something more useful. You cannot grow enough food to support yourself efficiently. Most Americans eat 2k to 4k pounds of food per year. Most of this is in the form of starches- cereals that are almost impossible to grow in your back yard in large enough quantities to be meaningful. You cannot live on tomatoes, either.

You also need clothes, shoes, tools and fixtures, lights, power, water and waste facilities, non- staple food items such as cooking oil and spices, most meats and hundreds of other goods that are too numerous to itemize. For the time being these will be available but with increasing difficulty. It is the difficulty you must prepare for not the ‘absolute worst case scenario’ in which nothing is available at all.

Having said this, the way to prepare is to pretend you are your own grandfather or grandmother. Have a full pantry as they did. They lived in a period without ‘just in time’ delivery systems and without constant use of the car. They had inventory of useful items — not junk. Have a couple of weeks worth of food and water on hand. Have some cash money. Have some tools and flashlights with good batteries. Have extra blankets and spare clothes. Get a small gas grille and a propane bottle so you can cook if the utilities fail. Get some form of lighting so you can endure a blackout. All of this is common sense.

If you desire to travel, so so now rather than waiting for the next energy ‘crisis’. It will entail restrictions on travel other than on foot. It’s hard to go to Europe on foot!

Keep in mind that the cultural downsizing has already taken place in other, poorer parts of the world. When you travel note that people are adaptable and can do so with good humor. The failures are at the level of administration, not so much at the bottom. Get used to the bottom. That is where most will wind up!

Good luck!