The Prudent Investor

AAA Rating or Not - Crowd Sourced Wikirating Values Your Input

2012-01-26T14:49:00.002+01:00

Recent downgrades of European government and bank debt have fuelled the discussion on the establishment of a new European rating agency. This will bring no relief, as long as Euro politicians will be eager to exert influence in such a new entity, can be concluded after their accusations that S&P's move on January 13 was politically motivated.
Undisclosed rating processes on a 10-step ladder from AAA to D, salted with '+' and '-' signs, facilitate criticism about an opaque procedure that ultimately costs public borrowers billions in additional future interest rate payments.
Setting up another ratings agency along the same conflict-laden model will be futile as long as this economic down cycle is with us on a global scale. The strongly growing chaos in the Eurozone cannot be upheld by a new entity that follows old guidelines as this has shown the lack of effective transparency, efficiency and neutrality in an outdated system.
World Map Sovereign Debt Ratings by Wikirating

Click to enlarge

After Wikipedia and Wikileaks shone light on science, history and politics, Wikirating may bring open source financial transparency to the web. Attempting to iron out structural problems of traditional rating procedures, Wikirating is open source, fully transparent and retrieves its results from participants input.
Initiated by Austrian mathematics Dorian Credé and and finance whiz Erwan Salembier, ratings are derived from weighted user input. They stress to point out that their model will improve with rising user input who also have a say in improving the formulae used.
Wikirating's methodology can be found online.
The Sovereign Wikirating Index (SWI) is a very simple process and includes economic indicator plus indices on human development, corruption perceptions and political (in)stability. SWI ratings tend to underscore the ratings of Fitch, Moody's and S&P and align more to Chinese Dagong agency. Find a comparison table of the SWI and the other agencies here.
The SWI uses these criteria, using official data sources:

Public debt (in % of GDP) — 50% weight

Account balance (in % of GDP) — 20% weight

GDP growth rate — 10% weight

Inflation rate — 10% weight

Unemployment rate — 10% weight

The resulting value is adjusted by multiplying it with a Scaling factor, which is composed by the

Human Development Index (HDI) (60% weight),

Corruption Perceptions Index (20% weight) and the

Political Instability Index (20% weight).

Based on data and user input since October 2011, sovereign ratings at Wikirating tend to be slightly lower than at the other agencies. This proves the widespread criticism that conventional ratings are downgraded too slow. It is obvious since the onset of the crisis in 2007 with the implosion of subprime market that these ratings were not reliable and that rating methods needs to be drastically improved and controlled.
The exaggerated power and influence of the credit rating industry has strongly motivated the idea of Wikirating. The analyses on credit worthiness of countries and governments issued by the rating industry have been too long over rated, and whereas governments are trying to regulate the rating and assessments activities, Wikirating offers a platform where anyone can contribute for better, open and more transparent credit risk assessment.
A country list shows far fewer AAA ratings and sees most major nations one or two notches below their established ratings. This is well reflected in this graph of rating distribution based on 102 countries.

Only 2 countries retain their AAA rating with Wikirating, Hongkong and Luxembourg.

Find a complete table of rating comparisons with the other agencies here.
I recommend to surf their website that lists more information on such delicate issues like user influence and also provides links to become a member.

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RED ALERT: EU Finance Ministers Push Through ESM Treaty in Fishy Fly-by-Night Move

2012-01-24T11:41:00.001+01:00

RED ALERT TO EVERYBODY INTERESTED IN THE ESM: THERE IS NO CURRENT VERSION OF THE ESM TREATY AVAILABLE!!!
Europe's most important treaty on the European Stability Mechanism (ESM), which will lead the EU into a financial dictatorship, has been pushed through by EU finance ministers late Monday evening.
But the latest version of the ESM cannot be found on English and German EU websites. A link on consilium EU only leads to a 'file not found' message and the German EU website "Europa von A - Z" does not mention the ESM at all. This reminds one of the secrecy around the Federal Reserve Act, that was pushed through in 1912. Is the EU Commission now playing the same fishy game 100 years later?
Media reports from last midnight only said that the ESM treaty was agreed on by EU finance ministers and mentioned January 30 as the date when the treaty will be officially signed.
Significant changes have been made, a few media reported.
The capital of the ESM will now be only €80 billion instead of the €700 billion proposed in the only available draft version from July 2011 (see treaty text below). The finance ministers also agreed to bring the ESM into existence one year earlier by July 2012, putting national governments under immense pressure to ratify the ESM treaty without sufficient public discussion.
German state TV ZDF reported shortly after Monday midnight that the fund shall have a financing volume of €500 billion, but this figure is a moving goal post. IMF head Christine Lagarde proposed a volume of €1 trillion whereas Italian prime minister Mario Monti and Austrian finance minister Maria 'Mizzi' Fekter said later that the ESM should be upped to €750 billion. Such important changes cannot be found in publicly released EU documents anywhere on the web. The ESM will be the successor of the European Financial Stability Fund (EFSF) which lost its AAA rating a few days ago.
It does not exactly reassure Eurozone citizens when European leaders throw around figures between €500 million and €1 Trillion, proving they have no other clue than to fight debt with more debt if the fund is going to be leveraged in the proposed style.
It is all the more troubling that last night's agreement changes have not been communicated by the EU at all. It reminds one of the ACTA act that was signed in a non-public meeting of the Agriculture and Fishing Commission and is designed to destroy the freedom on the internet. As a side note: Anonymous brought down the websites of three Austrian ministries and the Austrian chancellery on Monday evening, protesting that Austria will be one of the first countries to ratify this attack on internet freedom. This was not reported by Austrian state broadcaster ORF.
I have published my objections to the ESM in this post from last December. Nothing has changed since except for the reduction of the proposed capital and the date the treaty shall go into effect. The ESM and its staff will be completely immune and cannot be sued, but can sue itself. This stinks.

Here is a video describing the democratic shortfalls of the ESM treaty in German with English subtitles.

Here is the draft text from July 2011.

Open publication

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ECB Threatens Ireland with Bomb Terror, Ignores Journalist's Questions

2012-01-23T09:47:00.001+01:00

In a superb example of hubris representatives of the European Central Bank (ECB) simply tried to ignore justified questions from the Irish public in the video below. Irish journalist Vincent Browne had a very simple question, "why are Irish taxpayers required to bail out the holders of unsecured bonds?" At issue is the repayment of a €1.25 billion bond by Anglo-Irish Bank that will be due on January 25.
Watch this 5-minute video to deepen your impression that the ECB is not only a bad bank with almost no reserves, but also a badly managed bank, whose arrogant representatives seem to forget that they do not dictate the Eurozone. Browne's question is truly justified. As the name of unsecured debt says, repayment should only happen if the debtor is in the position to do so. It is this difference that pays higher interest to such bond holders as the risk of default is higher than on guaranteed bonds.
Read on afterwards as the ECB Troika has truly threatened Ireland with bomb terror.

ECB Says "A Bomb Will Go Off in Dublin"

Irish website Nama Wine Lake reported during last weekend that the ECB threatened Ireland over the due bond. I am especially disturbed about the language used. Just imagine an ordinary citizen saying the same words. He would be in the flashlight for terror threats. The ECB Troika was allowed to leave the country without further consequences despite their radical speech that is actually an extortion threat.
From the report:

“He [Minister for Transport and Tourism, Leo Varadkar] said that the Troika told the Government that “we don’t want you to default on these payments, it is your decision ultimately but a bomb will go off; and the bomb will go off in Dublin and not in Frankfurt.”

Minister Varadkar has been accused of being unrestrained in his comments but they have been refreshing in illuminating dealings that other politicians want to remain hidden. The Minister’s comments come a fortnight after the ECB refused to release a letter it had sent to the former Minister for Finance, the late Brian Lenihan on 19th November 2010, a letter which was understood to have warned the Minister not to default on senior bondholders.

If you can make out the difference between a mobster and the ECB, please post it in comments. I do not see any. And this is only the ECB with limited powers. Europe is still on the way into the ESM dictatorship whose proposed statutes already outline a much stronger language without the possibility of regress as this institution will be immune and cannot be sued for any wrongdoing.
Help stopping the ESM in its tracks. European countries are democracies where budget sovereignty must not be transferred to the people who watched the Eurozone go down and had no other solution than to make more debts.

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Germany to Begin Abolishing Cash Transaction in August 2012 Step by Step

2012-01-18T18:17:00.000+01:00

According to a report in German alternative media Kopp online Germany will begin to abolish cash transactions step by step from August 2012, putting the EU directive 2009/110/EC (PDF) into practice. Germany is the next country after Greece, where the ECB recommended such cash payment limits in May 2010 , and Italy, where cash transactions above €1,000 have been limited since December 4, 2011.
While the official reasoning says this is to combat tax fraud, it is actually another step towards total surveillance in the European Union. All forms of electronic payments can be traced completely.
Ironically a study from the German Bundesbank (PDF) from 2009 arrives at the conclusion that cash fulfills all functions of a payment device in the best way.
Germans still conclude 60% of their transactions with cash.

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Paper: Will a Fed Economist Become Slovenia's Prime Minister?

2012-01-16T18:57:00.000+01:00

Egon Zakrajsek, FRB

Is Europe slowly becoming a colony of the Federal Reserve and its bankster friends? Will a Federal Reserve Economist become the next Prime Minister of Slovenia after the Goldman Sachs colonization of the ECB (Draghi), Greece (Papademos) and Italy (Monti)?

Austrian daily "Kurier" had a snippet in its Sunday edition, saying that Slovenian Fed economist Egon Zakrajsek is at issue to become Prime Minister. The paper did not cite a source but reasoned that the stalemate betweeen leftist election winner Zoran Jankovic and conservative Janes Jansa has sprung calls for a "third man."

Facsimile from Austrian daily Kurier.

Translation: After the political stalemate between the left- oriented election winner Jankovic and conservative opposition leader Jansa calls for a 'third man" are getting louder. At issue as new prime minister is Egon Zakrajsek. He belongs to the innermost leading circle of the US central bank Fed.

According to his official bio from the Fed's website, Zakrajsek is an economist on the Board of Governors of the Federal Reserve system since 1999.

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Unseen in Main Stream Media: Ron Paul Warns of International Currency

2012-01-16T18:15:00.001+01:00

As these words from a Ron Paul speech given on January 12, 2012 in South Carolina, have not made it into MSM (mainstream media), here is another chance to catch up on his warnings about an International Monetary Fund (IMF) led intiative to usher in a global currency following a fabricated dollar crisis.
The IMF had first advocated a new global fiat currency in a paper from April 2010 (PDF) where the new currency was titled "Bancor".
UPDATE: The video has been removed recently. Ron Paul's message is transcripted below.

Transcript of Ron Paul's speech:

"Right now we have a financial crisis. They know it as much as we do and they are planning, but they are planning an international answer to this. They are planning through the IMF to come up with a world currency to replace the dollar because the dollar will be replaced. You just can't keep printing them forever. They are gonna have to attempt to restore confidence but they wanna come up with another paper currency controlled and ruled by the United Nations and the IMF. I would suggest very strongly that we need to send a powerful message to those individuals in charge, by showing them that we are not a small minority any longer and we are constantly growing and we are going to have a lot of influence with the future of this country."

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S&P Now Spelling AustriA Correctly With Downgrade to AA+

2012-01-14T14:08:00.027+01:00

A multiple downgrade of sovereign ratings by Standard & Poor's (S&P) has also reached Austria after the country had been put on the watchlist on December 6, 2011.
Austria was downgraded to AA+ from AAA on Friday with the negative outlook remaining.

S&P gave these reasons for the downgrade:

We are lowering the long-term sovereign credit rating on the Republic of Austria to 'AA+' from 'AAA'. At the same time, we are affirming Austria's 'A-1+' short-term sovereign credit rating.
The downgrade reflects our opinion of the impact of deepening political, financial, and monetary problems within the European Economic and Monetary Union (eurozone), with which Austria is closely integrated.
The outlook on the long-term rating is negative.

FRANKFURT (Standard & Poor's) Jan. 13, 2012--Standard & Poor's Ratings Services today lowered the long-term sovereign credit ratings on the Republic of Austria to 'AA+' from 'AAA'. We removed the ratings from CreditWatch, where they were placed with negative implications on Dec. 5, 2011. At the same time, we affirmed the short-term sovereign credit rating on Austria at 'A-1+'. The outlook on the long-term rating is negative. Our transfer and convertibility (T&C) assessment for Austria, as for all eurozone members, is 'AAA', reflecting Standard & Poor's view that the likelihood of the European Central Bank restricting nonsovereign access to foreign currency needed for debt service is extremely low.

This reflects the full and open access to foreign currency that holders of euro currently enjoy and which we expect to remain the case in the foreseeable future. The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements from policymakers lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems.

In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures. We also believe that the agreement is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the eurozone's core and the so-called "periphery".

As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues. Accordingly, in line with our published sovereign criteria, we have adjusted downward the political score we assign to the Austria (see "Sovereign Government Rating Methodology And Assumptions," published on June 30, 2011). This is a reflection of our view that the effectiveness, stability, and predictability of European policymaking and political institutions (with which Austria is closely integrated) have not been as strong as we believe are called for by the severity of a broadening and deepening financial crisis in the eurozone.

The ratings on Austria continue to reflect our view of its stable governance and predictable economic policies, which remain hallmarks of Austrian politics. We view Austria's economy as wealthy, diversified, and highly competitive. We expect the pace of fiscal consolidation will increase, which we believe could reduce fiscal deficits and debt faster than outlined in the government's 2011 budget plan, and perhaps even in its budget for 2012.

This is provided the eurozone environment does not deteriorate such that it hampers this goal. Austria, though still a net debtor on its external position, has reported what we consider sound current account surpluses over the last 10 years, gradually improving its debtor position. In our opinion, contingent liabilities are moderate and stem primarily from the banking industry's exposure to Central and Eastern Europe.

In our view, Austrian banks' balance sheets could suffer from negative developments in major trading and outward direct investment partners (such as Italy and Hungary). In this instance, the banks could require additional government support. Furthermore, if economic growth is much weaker than we expect, this could undermine the government's attempts to consolidate its budgets, and could also render structural reforms ineffective. The outlook on the long-term rating on Austria is negative, indicating that we believe that there is at least a one-in-three chance that we could lower the rating further in 2012 or 2013. We may lower the rating if we come to believe that:

The weakening of Austrian banks' balance sheets stemming from negative developments in major trading and outward direct investment partners meant that the Austrian government needed to recapitalize the banks. This could in turn lead to net general government debt rising above 80% of GDP, and could also further increase contingent liabilities; and/or

Economic growth is much weaker than we currently expect. This could undermine the government's attempts to consolidate its budgets, and could also render structural reforms ineffective. This could lead to an increase in net general government debt beyond 80% of GDP.

The ratings could stabilize at the current level if the risks from the banking sector remained contained, and if Austria were to enter into a more-ambitious consolidation phase by implementing structural reforms, without damaging economic growth prospects and competitiveness. In our view, such consolidation measures would likely enable Austria to structurally balance its accounts and decrease its net general government debt.

And here is the distillate from the release concerning 16 of the 17 Eurozone members:

Today's rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the Eurozone. In our view, these stresses include:

tightening credit conditions,

an increase in risk premiums for a widening group of eurozone issuers,

a simultaneous attempt to delever by governments and households,

weakening economic growth prospects, and

an open and prolonged dispute among European policymakers over the proper approach to address challenges.

Find the complete statement at the end of this post.
Politicians of all colours (with the notable exception the Piratenpartei) and the tabloid press were quick to damn the downgrade as a political attack, verifying the fact that international finance is still a book with seven seals to them. A joint statement from chancellor Werner Faymann and vice chancellor Michael Spindelegger lambasted S&P for its move after both Moody's and Fitch had confirmed their Austrian AAA rating a few weeks earlier.
While I remain most critical of the opaque rating process of the rating agencies I am even more critical of the whining posture of Austria's politicians who act as if this overdue downgrade - that will very likely be repeated in the near future due to the chaos in the Eurozone - is unjustified.
As a reminder: Austrian government debt stands currently at €218 billion or 76% of GDP and races higher because the ruling coalition officially attempts to come up with a €3 billion to €10 billion budget cuts package by end of February while it cannot even agree on €250 million savings on the state level of the republic. I bet everybody a troy ounce of gold that there will be no multi-billion austerity package by the end of February.
Statements by the government and central bank governor Ewald Nowotny, who called the downgrade incomprehensible, are unrealistic in the light of S&P's warning from December 6 and the ensuing non-action by Austria's government.
Unofficial mumblings that markets should not take the downgrade too serious are actually a call to break the law: Bond fund managers are tightly restricted by investment fund laws that oblige them to observe the ratings of the three major rating agencies.
Nevertheless I agree with governor Nowotny that the downgrades were a politically motivated action by S&P which is owned by McGrawHill. I was not able to find out who is the majority owner of this company that has so far failed to downgrade the USA despite its much higher level of debt that already stands at more than 100% of US GDP. The rating agencies also veil their rating process in secrecy and I am still waiting for the math behind a one-step downgrade.
A look at Austria's yield differential to its peer Germany shows that spreads have risen dramatically over the past months. Austria used to pay a spread of 30 to 40 basis points 'liquidity premium' for almost two decades. This has changed dramatically: 10-year government bonds now yield around 3.60% vs. Germany's 1.90%, showing that markets assess Austria by now much worse than Germany.
Markets are, as always, most correct in their evaluation of Austrian debt: Members of parliament and the government waste time haggling about changes in the national hymn while not addressing the key obstacles of the future that are:

a huge pension problem as demographics change (what a surprise for politicians: we all become older),
a growing budget deficit due to a still growing public sector, and
huge problems of several Austrian banks who recolonised Eastern Europe and now face billions in loans in default.

The concernment in the Eurozone about the downgrade 'shock' proves once more that while EU politicians are never shy of trying to cut corners to their advantage they lack creative ideas to save the Eurozone from rapid disintegration.
Here my tongue-in-cheek solution:
McGrawHill is currently valued at billion. It would have been a lot cheaper to buy McGrawHill and gag its subsidiary S&P. These billions would have brought ownership of a flourishing publishing company. Now this money will end up in the coffers of JP Morgan, Goldman Sachs et al who can borrow trillions from the Federal Reserve for next to nothing and buy up higher yielding European government debt.
This is a currency war and the Eurozone is on the way to lose it.

Here is the complete S&aP statement on the rating actions concerning 16 of the 17 Eurozone member countries:

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8.5 Trillion Bullion vs. 750 Trillion Derivatives

2012-01-09T18:01:00.000+01:00

Click graph for complete display.

From: Number Sleuth

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Read Here What Comes Next in the Eurozone Crisis

2011-12-06T16:42:00.000+01:00

Parsing the multitude of ruminations about rating agency Standard & Poor's threat to downgrade all Eurozone members I am left wondering how this announcement comes as a surprise to many market observers while failing to see the bigger picture that was drawn so far in 2011.
Ring-fenced by exploding deficits, rocketing yields, stubbornly rising unemployment especially among the youth and a true inflation closer to 10% than official figures of three percent, the long term negative outlook for the Eurozone has not changed in the past 11 months.
This action was overdue but again serves more to highlight the deficiencies of an opaque rating process than act as a reliable guideline. After all, most of these Eurozone countries have smaller debt/GDP ratios than the USA, which passed the 100% mark this week and rises faster than EU deficits.

After the announcement of future unlimited money printing through dollar swap lines from the major central banks on November 30, that propped up markets and the Euro, the downgrade announcement is the next step in keeping a volatile equilibrium during the demise of Euros and Federal Reserve banknotes against the ultimate currency of all times; gold.
Rating agencies have been most timely to paint the chart with pivot points, smoothing out spiking markets that wait desperately for the impossible: A silver bullet solution to the Eurozone's woes that stem from a decade of easy credit and the lowest interest rates in history, that produced Spanish hairdressers as second home owners/debtors on annual salaries of €12,000.
This is not going to happen. The Euro was initiated as a political goal for deeper EU integration and lacks a Treasury as guarantor like in the US monetary system.

The Coming Crisis Meetings in 2012
Its destruction will begin to follow a shock and awe script as the "no more Euro core" members have yet to come to terms with the unpleasant reality that a slowdown of debt growth will not be enough to get their houses inoder again. Greece may be soon everywhere as Eurozone nations will get squeezed between the need to refinance €800 billion in government issues and the resulting higher interest rates.
Here are some expected headlines from the coming 12 months that will keep EURUSD in a rough balance while both will continue to decline against gold.

Rating agencies will downgrade Eurozone banks after downgrading Eurozone sovereigns
EU in crisis meeting about banks downgrades
Big league banks will issue more recession warnings for both Europe and the USA
EU holds only a limited emergency meeting
Fearful investors demand dramatically higher yields for government bond issues, deepening the coming credit crunch, resulting in cancelled bond auctions
EU announces another crisis meeting about the credit crunch
Merkel and Sarkozy will push for European Stability Mechanism (ESM) as a last saviour of the Eurozone
Merkel and Sarkozy announce the next crisis meeting
EU wants to find way for a fiscal union without triggering referendums in member states
EU announces crisis summit because people voice widesprent dissent
EU will try to fast track a treaty change
EU needs another crisis meeting
EU member states will demand referenda for any treaty changes
EU hosts next crisis meeting
Deadlock in EU weakens Euro further, will result in
More crisis meetings which lead again to
More and renewed calls for a EU Treasury and the ESM by those EU forces envisioning a United States of Europe (that is actually only a UDE)
The EU goes into the next crisis meeting.

Before you now reactivate Solitaire on your screen, please keep in mind that those are only EU headlines. Global geopolitical tensions will keep markets lightfooted while new upheaval in Russia and the Middle East are destined to keep the bloated forex market running on high leverage. As in most cases of collapsing currencies it may well be an exogenous shock that brings the Euro closer to its true intrinsic value.

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The Next Steps in the Eurozone Crisis Will Lead into the ESM Dictatorship

2011-12-02T18:31:00.001+01:00

A downward spiral of short-lived political announcements that have declined from the superficious to the meaningless may fill the headlines of dutiful 24/7 news outlets.
But while attention is wasted on political gobbledygook, leading Eurocrats manage to steer the train wreck aka Eurozone towards greater centralization in Brussels that will ultimately lead to a political ambush in order to push through the true monster in the backyard, the European Stability Mechanism ESM.
Published in English only, depriving 85% of Europeans of their possibility to inform themselves, it is no exaggeration to say that the ESM will lead the Eurozone into a technocrat dictatorship without any democratic oversight at all.

The ESM was signed by the 17 Eurozone finance ministers on July 11, 2011, and has yet to be ratified by national parliaments.
The treaty text mandates unconditional and irrevocable membership while ensuring complete immunity to the institution and its staff. One does not fill a good part of the treaty with such get-out-of-jail cards if there were no future need of such.
Watch this video that has gone viral in German and is playing with English subtitles here to get a first taste of the totalitarian ESM structure.

Make no mistake, when German chancellor Angela Merkel and French president Nicolas Sarkozy envision a more centralized Eurozone, they ultimately mean the ESM that can draw funds from member states within 7 days without giving a reason and without the possibility of legal recourse.
Checking the latest status of the Eurozone crisis talks, Merkel has just slammed hopes that the EU summit on December 8 and 9 will deliver any meaningful results, the Independent informs:

German chancellor Angela Merkel has said there is no easy fix to the European financial crisis, and that a solution will "take years".
Mrs Merkel told her country's parliament that "the German government has made it clear that the European crisis will not be solved in one fell swoop".
She added: "It's a process, and that process will take years."

This should give you enough time in between to read the ESM treaty down below in full. If not, make at least sure to read from page 35 onwards for the spicy details about self-oversight and immunity, which begins on page 37.

Open publication

Merkel announced unspecified future amendments to the ESM treaty on Friday in a press conference with Austrian chancellor Werner Faymann as Eurozone leaders are going the extra mile in order to avoid a referendum on such fundamental issues like the transfer of budget sovereignty to a yet to be created EU Treasury in Brussels.

Bernanke Will Keep the Roulette Wheel Spinning
In the meantime central banking comrade Ben Bernanke from the Federal Reserve stands ready for a dollarization of the rest of the world with basically unlimited dollar swap lines with the world's major central banks.
While European leaders can continue to haggle about concepts that will just add another layer of ESM debt on top of all other debts the Fed will exchange worthless Federal Reserve Notes (FRN) for worthless European collateral, aiding the European Central Bank (ECB) in hiding the true damage to the Eurosystem where the ECB can no longer 'sterilize' monetization as banks prefer to park their assets with the ECB.
And the Fed has unaudited firepower galore. According to former US Congressman Alan Grayson the Fed lent a whopping $26 Trillion or roughly double the annual US GDP to banks in 2008 at the onset of the current permacrisis. Bernanke's helicopters are ready to rain dollars on the Eurozone again.

Banks Were Helped with $26 Trillion Under the Table

VIDEO: Jump to 2:20 minutes where Alan Grayson says, "Ron Paul's ... audit of the Federal Reserve, which has now shown 16 Trillion dollars in money directly lent out from the Federal Reserve to ... various institutions including many foreign institutions. ... about a third of the money went to foreign institutions and on top of that another 10 Trillion dollars in currency swaps between the Federal Reserve and foreign central banks..."

As the Fed's announcement from last Wednesday to keep the monetary spigots wide open and intervene in any and all falling markets should ensure more phantom liquidity for a comatose Eurozone, this dollarization may become a competitor to the Eurozone's own (lack of) ideas and lead to a EU colonization by US investment bank Goldman Sachs.
With the recent installation of former Goldman Sachs employees/consultants as heads of the ECB (Mario Draghi), Greece (Lucas Papademos) and Italy (Mario Monti) the Wall Street dominator is well positioned to influence European politics far and wide. The tentacles reach elsewhere too: It does nut hurt that the current US ambassador to Germany earned 23 years of paychecks at Goldman too.
As the leading primary dealer in Austrian government bonds Goldman reaches deep into the decision-making circles in that Alpine nation too.
But back to the ESM.
Like the Federal Reserve Act in 1913, the ESM treaty found absolutely no media attention when it was signed last July despite its far-reaching implications for more than 300 million Europeans.
Dutch-based website courtfool.info has investigated the matter further and discovered a swift path towards Brussels monetary totalitarianism.
The website arrives at a startling - and frightening - pattern:

On 17 December 2010 the European Council decided there was a need for a permanent stability mechanism to take over the tasks of the Financial Stabilization Mechanism (EFSM) and the European Financial Stability Facility (EFSF). These are two rapidly erected organizations, respectively in May and June 2010, to supply loans to countries with too many debts. However, these organizations lack a legal basis.
Let us already note here that these organizations were explicitly conceived for financial interventions, while the amendment in the treaty that allows the establishment of the ESM, also allows setting up organizations for quite other fields of action.
This amendment arrived on March 25 2011. To avoid having to organize referendums in Europe once more, they used article 48.6 of the Treaty of the European Union, which allows the European Council to decide changes in the articles of the treaty, under condition they don’t constitute an extension of the competences of the EU. The amendment consisted of an innocent looking addition to a paragraph of article 136 (TFEU). In short, this addition stipulated that “the countries using the euro were allowed to establish a stability mechanism to safeguard the stability of the euro zone as a whole”. Expressed this way, it does not deal exclusively with financial stability. Surveillance of vigilant citizens, oppression of protests or the fight against any other destabilizing element in the euro-zone, can, via this amendment, be conferred to new organizations under EU-flag.
In other words, this amendment surely constitutes an extension of the competences of the EU. Thus, it violates Article 48.6 of the Treaty of the European Union. Nevertheless, no Minister and no national Parliament were bothered by this and in Brussels they happily and promptly continued to draw up the ESM treaty.
On 20 June 2011 the national Parliaments authorized that the tasks of the ESM treaty would be executed by the EU and the European Central Bank.
On 11 July 2011 the treaty was signed. Although the signature was made public later that day, directly at the opening of a press conference with dozens of journalists (photo above), the next day there was not a single headline in the newspapers (not nationally, nor internationally) about the signature of this new European Treaty. Could it be caused Juncker announced it in French... before continuing the conference in English?

The facts are on the table now but do not expect Europe's political representatives to know anything about it. According to this Wall Street Journal blog entry, only 35 of Europe's 736 MEPs (Members of the European Parliament) attended a Draghi speech on December 1 where Draghi proposed more centralization via a 'fiscal compact' - meaning an EU finance ministry.

"We have already started preparing the ESM internally."
All current political haggling about the EFSF (European Financial Stability Fund) or Eurobonds - now dubbed 'stability bonds' by Germany - appears to be superfluous shadow boxing when one listens to the EFSF insiders.
EFSF CFO Christophe Frankel told Reuters already mid-November that the EFSF could change its nameplate to EMS without problems:

Frankel said preparation for the new permanent euro zone support scheme, the European Stability Mechanism (ESM), was under way and that technically, the EFSF could already carry out its mission.
"ESM will have the same mission as the EFSF so in practical terms, we are already ready," he said. "We have already started preparing the ESM internally."

This again proves the haughtiness of Brussels nasty procedures: While politicians keep the public busy with smoke and mirrors, the Eurocrats are working behind the curtains to establish totalitarian control over more than 300 million Europeans and loot them in order to save the banks at truly all costs.
One needs not much fantasy how the Eurozone crisis will develop once the ESM is pushed into place: In the end Europe will be relegated to third world status, laden with ESM and probably IMF debt too.
This would be the end of democracy. It must not happen.

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Take the Money and Run

2011-11-14T11:42:00.000+01:00

Irish finance expert Eddie Hobbs appeared on Irish TV on 11/11/11 and paints a compelling picture that the Euro is toast. His advice: Take the money (out of the bank) and run. I would add: Convert your paper savings into gold.
Watch this 6-minute video for a complete overview of the last stage of the Euro currency.

Austrian Central Bank Strikes Exotic Deal with PBoC While Entangled in Alleged Kickback Scandal

2011-11-11T00:16:00.000+01:00

Austria's central bank, Oesterreichische Nationalbank (OeNB) delivers headlines ranging from opaque to criminal these days.
Market observers scratch their heads about a secretive agreement between the OeNB and the People's Bank of China (PBoC) that makes Austria the first non-Asian country permitted to engage in Renminbi investments with its Chinese counterpart as the intermediary. Further media inquiries were stonewalled.

A terse press release, obviously born in close cooperation with the big Chinese partners, said,

Based on the excellent long lasting contacts between the People´s Bank of China (PBC) and the Austrian central bank (OeNB), the Governors of the two central banks, Mr. ZHOU Xiaochuan and Mr. NOWOTNY Ewald, today signed an important agreement in Beijing. This agreement enables the OeNB to invest via the PBC in Renminbi-denominated assets.
This is the first agreement of this kind signed by the PBC with a non-Asian central bank, and can be seen as an important step in the good relationship between the PBC and the OeNB.

Like every Eurozone country Austria will pursue every financial help it can get in vain efforts to fend of the inevitable crash of a system laden with unsustainable debts and a hopeless situation in the pension/welfare system, while corrupt politicians only try to secure their own golden handhakes.
Corruption and white collar crime, already widespread in Austria, has reached the central bank's doors too.
Prosecutors currently follow a money trail between Austria, Switzerland and Panama that originated at the - of all places - money printing company OeBS (Oesterreichische Banknoten und Sicherheitsdruck Gesellschaft), a 100% subsidiary of OeNB.
According to latest reports by state TV ORF authorities have taken the 2 former CEOs of OeBS and 2 lawyers into custody. A spokeswoman of the state prosecutor said there are allegations of money laundering and other issues.
Together with other local media reports it appears that the OeBS employees may have developed a kickback system through a Panama shell, Venkoy, that was known to OeNB governor Ewald Nowotny, according to protocols of supervisory board meetings which he led. OeNB had fired the 2 heads of OeSB by October 28 after finding out about the theft and reported the matter to authorities.
Currently the alleged damage is given with €14 million by Austrian media.
Printing Money for Syria
The story gets still juicier. Lawyer Manfred Ainedter, defending one of the detained, threw up more mud and said in a TV interview that the Panama company may have been routinely used as a bribery vehicle. OeBS provides banknotes for countries like Syria and former Soviet republics. The lawyer said further, "that you have to have people on location to secure contracts", suggesting that corruption greases international trade. His argument, that state-owned OeBS only did what private money printers did, does not really help sustain the false hope that money printing is a solution.
As if that were not enough, the central bank of the country - whose "Creditanstalt 1931" 'event' should be a reminder to the exceptions of the 'not possible' situations - threw more light into the lucrative corners of money printing, saying provisions of 20% for deal helpers were a "usual" part of the game. A manager in the Swiss office of Venkoy stated ominously that money was paid, without going into further details.

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Wikileaks: Merkel Hid Reality of Greek Debt Situation From Her People in 2010

2011-11-09T10:35:00.000+01:00

A newly released cable from the German US embassy from February 2010 proves again that Eurozone leaders were happy to hide the full dimension of the Greek debt crisis and its implications for the German budget deficit as long as possible.
The confidential document published by Wikileaks again highlights the fact that politicians prefer to lie until the last possible moment.
This snippet says it all:

Chancellor Merkel is clearly relieved she does not, for now, have to explain to the public why the German government is running up its own deficit to bail out debt-laden Greece.

Here is the full text of the confidential cable:

C O N F I D E N T I A L SECTION 01 OF 03 BERLIN 000181
SIPDIS
STATE FOR EEB (NELSON, HASTINGS), EEB/IFD/OMA
(WHITTINGTON), DRL/ILCSR AND EUR/CE (SCHROEDER, HODGES)
LABOR FOR ILAB (BRUMFIELD)
TREASURY FOR SMART, ICN (NORTON), IMB AND OASIA
SIPDIS
E.O. 12958: DECL: 02/12/2020
TAGS: EAID EFIN ECON PREL EUN GM GR PGOVSUBJECT: GERMANY RELIEVED BY EU SUMMIT OUTCOME ON GREECE
Classified By: ECONOMIC COUNSELOR INGRID KOLLIST, REASONS: 1.4 (B) AND
(D)
1. (C) SUMMARY: Chancellor Angela Merkel's government welcomed the decision taken at the EU's February 11 informal summit in Brussels not to provide financial assistance, for the moment, to cash-strapped Greece. German officials believe a bailout is not needed at this time, and that extending a lifeline to Greece would have carried too many risks. One major fear in Germany is that "saving" Greece would lead to other needy Eurozone members expecting the same treatment. Another concern is that extending an explicit guarantee for Greece could weigh on Germany's own good standing in the markets, ultimately raising its borrowing costs. While German government officials do not totally rule out an IMF program for Greece if push came to shove, most consider this eventuality highly unlikely, especially in light of the European Central Bank's strong opposition. In fact, the German government, the ECB and private German economists are downplaying the seriousness of Greece's predicament and its potential impact on stability of the Euro. They agree, however, that the crisis could have longer-term consequences for EU institutions and how they interact with member states that stray off course. END SUMMARY.

NOT IN THE MOOD
---------------
2. (C) Prior to the February 11 EU Summit in Brussels, there
was much hair pulling in Berlin over the wisdom of participating in some sort of Greek rescue. No one savored the idea of explaining to German taxpayers, already concerned about Germany's record deficit, that they would be footing the bill for the irresponsible behavior of another country.
A Finance Ministry official explained to us that many Germans felt disgusted by the situation in Greece: "While Germans have spent the past decade tightening their belts and improving their competitiveness, Greek civil servants still earn 14 months' salary per year." A recent editorial in the German daily Frankfurter Allgemeine Zeitung (FAZ) asked rhetorically whether Germans would need to work until age 69 just to finance early retirement for Greek workers. With important upcoming elections in the state of North Rhine-Westphalia, bailing out Greece would not be a vote
winner.

OFF THE HOOK
------------
3. (C) The German government was, in fact, "relieved" that the European Council meeting on February 11 decided not to put concrete assistance on the table at this time. Wolfgang Merz, Director for European Financial Affairs, German Ministry of Finance, told us that while Germany stands ready to throw a lifeline if the Greek government truly runs aground, Greece currently has access to capital markets and needs no outside assistance. The key to overcoming the crisis will be the Greek government's implementation of the planned austerity measures, said Merz. Bernhard Speyer, Head of Banking, Financial Markets and Regulation at Deutsche Bank (DB) Research, agreed that the EU struck the right balance:
"The decision gave reassurances that Greece would not be abandoned, but kept the pressure on the Greeks by not yet putting cash on the table."
4. (C) Stepping in with assistance at this point carried too many downside risks, according to Merz. Legal questions aside, a German or EU bailout of Greece might have harmed Germany's credit worthiness, thereby raising its own borrowing costs. Merz added that a bailout would certainly have set a bad precedent for other Eurozone countries, such as Spain and Portugal, experiencing similar stresses. (Merz acknowledged, however, that these two countries' problems were less acute -- a sentiment echoed by Speyer.)
5. (C)Still, there is some skepticism that Greece's austerity program will get the country's finances on the right track, even if fully implemented. Merz said an IMF bail out remained on the table, despite the official line that the situation in Greece could be addressed within the EU.

IMF RESCUE? RESOUNDING NO FROM ECB
----------------------------------
6. (C) According to Karlheinz Bischofberger, Deputy Head of the Financial Stability Department at the European Central Bank (ECB), the likelihood that the IMF will be asked to bail out Greece is "zero." Greece does not have a balance of payments crisis, so there is first and foremost no basis for the IMF to step in. Bischofberger added that apart from the damage to the ECB's reputation an IMF intervention would inflict, it was uncertain that the IMF could even succeed in doing the "political dirty work" of forcing Greece to implement a structural adjustment program. DB Research's Speyer concurred, adding that it would undermine the credibility of EU institutions to manage a crisis.

REPORTS OF MY DEATH ARE GREATLY EXAGGERATED
-------------------------------------------
7. (C) Talk of a possible break-up of the Eurozone is "absurd," according to Moritz Kraemer, Managing Director, Standard and Poor's. He noted that Eurozone membership is still seen as highly desirable, and there was absolutely no incentive to exit, despite the allure of devaluation. Any country that tried to leave the Eurozone would get hammered in the credit markets, exacerbating any underlying structural problems. S and P estimates that Greece's rating in the case of an exit would drop to "BB " or lower, i.e. below investment-grade. Even today, Greece's rating of "BBB " is higher than it was in 1997 ("BBB-") before joining the common currency.
8. (C) While the current crisis may have revealed an "Achilles heel" of the Eurozone, it may present opportunities, according to Klaus Masuch, Head of the EU Country Division, Directorat General of Economics, ECB. The crisis is a "healthy warning signal" that Eurozone members must conduct "sound national policies in line with the agreed rules." It also underlines the necessity of better
integration and coordination of member state fiscal policies.
The Euro will come out of this crisis strengthened, he said.
Better and stricter early warning and surveillance systems
will be in place, and the Stability and Growth Pact will ultimately be reinforced. DB Research's Speyer agreed, adding that the crisis could make EU member states proceed more cautiously with enlargement.

A EUROZONE CHAPTER 11
---------------------
9. (C) DB Chief Economist Thomas Mayer told Ambassador Murphy
he was pessimistic Greece would take the difficult steps needed to put its house in order. A worst case scenario, says Mayer, could be that Germany pulls out of the Eurozone altogether in 20 years time. In 1990, Germany's Constitutional Court ruled that the country could withdraw from the Euro if: 1) the currency union became an "inflationary zone," or 2) the German taxpayer became the Eurozone's "de facto bailout provider." Mayer proposes a "Chapter 11 for Eurozone countries," which would place troubled members under economic supervision until they put their house in order. Unfortunately, there is no serious discussion of this underway, he lamented.

COMMENT
-------
10. (C) Chancellor Merkel is clearly relieved she does not, for now, have to explain to the public why the German government is running up its own deficit to bail out debt-laden Greece. Still, the German government appears prepared to step in as a last resort if needed and is cognizant that German banks (such as Hypo Real Estate and Deutsche Bank) and insurance companies (Allianz) have
significant exposure to Greek sovereign debt. The crisis is
also viewed -- within the German government as well as within the ECB -- as a way to exert greater influence over the public finances of profligate Eurozone members. Some Christian Social Union (CSU) politicians are even using the crisis to promote the candidacy of Bundesbank President Axel Weber as next ECB President, arguing that Weber's selection would send a signal that Eurozone stability is paramount.
One way or another, the consequences of the Greece crisis seem likely to outlive the immediate situation. One strong possibility is that German influence over policy in the common currency area will grow.
11. (U) Embassy Berlin and ConGen Frankfurt co-drafted this
cable.

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The True Intrinsic Value of Euro 'Money'

2011-11-08T09:12:00.001+01:00

Ever wondered about the true intrinsic value of Euro banknotes?
Prudent Investor blog reader Kurt Lindlgruber from Austria sent me this pragmatic approach, pulling up the calorific value of such notes once they have lost their purchasing power as did all fiat currencies in history.
Lindlgruber's calculations contradict French philosopher Voltaire's famous quote that

'Paper money will always return to its intrinsic value. Nothing.'

It is not all that bad. Your soon-to-be worthless Euros will at least keep you warm for a few minutes.
Here is his calculation:
The minimum value of paper money after the Euro crash corresponds with its calorific value.
A €5 banknote weighs 0.6 grams. The calorific value of one kilogram European fiat money (= 1,667 €5 notes) is 5 kilowatt hours (kWh).
You can fare much better with gold:
Based on Monday's Euro gold price of €1,260/oz one ounce will buy you 21 metric tons of wastepaper (current price €60/ton) which has a calorific value of 105,000 kilowatt hours.
The average heat energy consumption of a single family detached house is around 5 kWh. So 21 tons will heat a house for 21,000 hours or 2.4 years.
If you hold on to your Euros instead of gold, 252 €5 notes (=€1,260), they will deliver a calorific value of 0.76 kWh

(252 x 0.6 x 5 / 1000 = 0.76 kWh)

will keep you warm for a mere 9 minutes instead of 2.4 years.

This is the calculation for 'paupers' who hold such small denominations.
If you happen to be a wealthy money bag, drug dealer or tax evader, who all tend to stash the handy €500 notes, you will likely be much worse off despite their higher weight of 1.1 grams per banknote.
Rounding up the Euro gold price to €1,500 (I expect to see this price within a few weeks) your wealth will make you long for a thick blanket much sooner. Here is the calculation based on €500 notes:

3 x 1.1 x 5 / 1000 = 0,016 kWh

that will keep your house inhabitable for only 10.8 seconds.
To sum it up, here are your choices after the Euro crash:
Hold the monetary equivalent of one ounce gold

in €500 notes and you can heat your house 10.8 seconds,
in €5 notes and you can heat your house for 9 minutes,
in 21 tons wastepaper and stay warm for 2.4 years,
but 1 ounce gold based on James Turk's price expectation of €11,000/oz will keep your house heated for 23 years.

I haven't come across a more specious argument pro gold for the coming hard times in Europe.
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Perth Mint Issues a One-Ton Bullion Gold Coin Worth $56 Million

2011-10-29T12:05:00.005+02:00

Caution: It may prove difficult to get change when you go yacht shopping with this coin.
The Australian Perth Mint has produced the biggest 999.9 fine gold bullion coin in the world.
Featuring Queen Elizabeth II (Katie's silhouette would certainly have found more bidders) it weighs one metric ton. The coin is legal tender with a face value of one million Australian dollars.
Its current gold value is €39.6 million (39.55€ million).

The colossal coin measures nearly 80 cms wide and more than 12 cms deep.

This is the heavest superlative among high value legal tender bullion coins. In 2004, the Austrian Mint presented a 1,000 ounce (31.1 kilos) bullion coin. The Royal Canadian Canadian Mint came out with three 100 kilo coins in 2007.

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Moody's Turns Spotlight on "Austria Banks Derivatives"

2011-10-20T16:37:00.000+02:00

Here comes the next market mover. Moody's Investors Service is apparently doing some due diligence work on Austria's banks. Austria and its banks have been overlooked in the daily market game of who gets downgraded next until now. Austria still carries a AAA sovereign rating from all Moody's, S&P and Fitch. Austrian banks have done surprisingly well during EU wide downgrading orgies by the big 3 rating agencies.
This may be about to change, given this indication from my webstats.

SCREENSHOT: Moody's Investors Service starts checks on Austria and its banks with a 'Go ogle' search on "Austrian banks derivatives". Click to enlarge.

Moody's landed at this story from October 2010: Austrian Banks Carry €2.6 Trillion in Derivatives - Risk Unknown To Central Bank
Being behind the curve must be a tradition at Moody's. Here is the 2011 update: It Takes Only a 4% Adverse Move and Austria's Banks Are Out of Business.
Of Austria's top 6 banks, only Erste Group and Raiffeisen Bank International are listed. Both banks saw their share prices drop like all other banks recently. Erste Group 'corrected' its 2011 outlook from a €800 million profit in September to a €800 million net loss only 12 days later, raising eyebrows on the way it had accounted its derivatives until then. Austria's biggest bank, Bank Austria, is a 100% subsidiary of troubled Italian Unicredit.
Click for more background.

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Are You Reft or Light?

2011-10-20T09:39:00.000+02:00

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20.10.2011: Unofficial Death Date of the Euro

2011-10-20T08:27:00.003+02:00

It was exactly one year ago that I announced the death of the Euro due to the fact that EU talks on the EFSF had stalled by 20.10.2010.
Now here we are one year later and the latest official statement by French president Nicolas Sarkozy after a late night meeting with German chancellor Angela Merkel on Wednesday was only a terse "talks are stuck."
While this is not exactly news - that's been the situation since 2008 - Germany's first failed auction of 10 year Bunds is all the more and comes only a day after Spain could not sell the full allotment of €5 billion in short term treasury notes.
GET IT: Europe is not able anymore to raise the money it needs!
Germany's Failed Bund Auction Implies There Is No More European Benchmark
On Wednesday Germany had attempted to top up its September 2021 Bund by another €5 billion. Alas, there were no buyers for this amount. The Bundesbank drew only 4.5 billion in bids and had to retain €925 million for 'secondary market operations' on its own books. This is the first time in the history of post WW2 Germany that investors balked away from a German government bond issue.

In a sane world this would be called monetizing the debt.
This implies that the Eurozone has no more benchmark government debt issue.
Here is the announcement of defeat by the Bundesbank:

Open publication - Free publishing - More bund

Reuters summarized:

Germany sold 4.075 billion euros in its final reopening of the September 2021 bond, bringing the outstanding amount to 16 billion euros. A new January 2022 benchmark will be launched in November. The bid/cover ratio at the sale was 1.1, below the 1.5 at the previous sale in September and the 2011 average at 10-year Bund sales of 1.61, according to Reuters data. But with a target amount of 5 billion euros -- the Bundesbank retained 0.925 billion euros -- the 4.55 billion euros of bids drawn did not match the amount on offer.

The last 10-year auction deemed a technical failure was in July. "Looking at the bid/cover and the fact that ... we're facing an undersubscribed auction it shows that when risk appetite is on the rise it's difficult for the Finanzagentur to find enough demand out there," said WestLB's Leister.

Markets have stoically ignored this tectonic shift so far with the Euro holding its levels and gold receding further to $1,610 mark.
This is all insane.
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Citibank Has Clients Arrested Who Want to Close Their Accounts

2011-10-17T08:51:00.000+02:00

So much about a free market economy: Citibank in New York had several people arrested because they wanted to close their accounts and take their money with them.
And I had thought police only gets involved in bank robberies.

These actions are likely to entail legal battles as an alleged plain clothes officer dragged a woman into the bank and had her arrested there.
So much about capitalism: YOUR money is obviously not yours when banks need it themselves to survive.

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The Hungarian Private Debt Crisis Explained in 35 Seconds

2011-10-13T18:32:00.000+02:00

If there is still anybody out there, wondering how Austrian banks got into such a mess in Central Eastern Europe (CEE) by handing out loans for houses and cars to more or less everybody with a pulse; this Raiffeisen TV commercial from 2007 should explain it all.

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Finger-Tapping As Even German Government Expects Greek Default

2011-09-28T14:39:00.000+02:00

Gasping at the highest possible speed of standstill in Euro bailout negotiations, we have entered the finger-tapping phase.
Only political denial of the inevitable breakdown and official hopes for a breakthrough on the unsolvable question of a Eurozone bailout with Germany as the main contributor at the umpteenth emergency meeting will hold up markets another 2 days.
It can be safely expected that the Troika experts visit in Athens will not yield any news other than that EU, ECB and the IMF want to roll on with their plans of Eurobonds. This will not work as 80% of Germans are against a bailout.
Market expectations of the future of European banks reflect the futility of long dead-locked discussion on the political level best, this chart of 600 banks shows, which is back to levels last seen at the beginning of the biggest debt bubble in history in the early 1990s.

STOXX600Banks back to 18-year lows

Connect this with widespread layoffs in the financial industry where even Goldman Sachs cuts the bacon and this is a strong indicator that the coming system collapse is an accident waiting to happen, despite or because of zero interest rate policies.

Here is the latest daily digest on the non-progress of the Eurozone bailout from openeurope.

The FT reports that, according to senior European officials, splits are opening up between eurozone leaders over whether to revise the second Greek bailout package. Germany and the Netherlands, along with up to five other eurozone members, are leading the calls for bondholders to take bigger write downs on their holdings of Greek debt, while France and the ECB are fiercely resisting such a move.

German government privately expects a Greek default by December

The news is likely to dampen the recent market rally in Europe, especially for European banks. Reuters reports on concerns that the completion of the EU/IMF/ECB review mission in Greece will reveal higher funding needs than estimated under the second Greek bailout plan. German Chancellor Angela Merkel said to Greek state TV NET, "We have to wait and see what the troika...finds and what it will tell us [whether] we will have to renegotiate or not." Bild reports that the German government privately expects a Greek default by December. According to an unnamed source, Merkel told CDU MPs in a meeting recently, "We are trying to avoid a Greek insolvency. I can however not exclude this any longer.”
The Greek parliament yesterday voted to approve the new property tax aimed at raising an extra €2bn a year, although reports suggest the vote sparked riots in Athens. The move will allow the EU/IMF/ECB review mission to return to Greece today, with a final decision on whether to release the next tranche of Greek bailout funds not expected until mid-October.

Meanwhile, the Bundestag will vote to approve the expanded EFSF tomorrow and although the proposal should pass with opposition support, it is still unsure whether Merkel will gain the majority support from her governing coalition which she has demanded. The coalition can stand to lose up 19 votes and still maintain a majority, however, with the number of junior coalition FDP MPs planning to abstain or vote no still uncertain, the outcome is yet to be assured. Handelsblattreports that the Slovakian parliament vote on the expanded EFSF may be delayed until 22 October or later, and is not guaranteed to pass, with the parties again failing to reach a compromise on the topic last night. Finland will vote on the issue today, and is expected to approve the proposal, while Slovenia passed the plan yesterday.

Debate continued over the state of an increased eurozone bailout fund, with a clear proposal yet to emerge. French Finance Minister Francois Baroin said, “It is out of the question to put forward, three days from the Bundestag vote, the issue of whether we should increase the fund…Let’s not open Pandora’s box on something that is a red flag for Germany.”

German Finance Minister Wolfgang Schaeuble also termed proposals to increase the fund or even leverage it as “stupid”, according to the Telegraph.

Markets will widely swing or not until then, but the ultimate direction is down, due to the weak economic outlook in all worldwide regions. It will now be finger-tapping until the default of Greece or a cross-border bank that will stand at the beginning of the domino called European debt.
The situation does not improve by throwing smoke bombs like renewed EU talks on a financial transaction tax (FTT) - that will go nowhere due to UK opposition - or the recent six-pack enablement of more centralized economic governance under Eurocrat guidance. Forget about it; this is just a diversion from the real debt mountain that grows with every minute.

The Prudent Investor's Early Warnings
Nothing in the European debt disaster comes unexpected and was clearly visible since years.
Checking this blog's archive first warning posts on the European crisis date back to 2007, voiding all excuses that developments came by surprise.
Here are the key posts:
a first warning was first-hand information on the European property bubble as early as June 2007:

Have a Look at the Spanish Property Bubble (June 2007)
ECB Will Continue To Print Money by the Truckload - So Who Is About to Fail? (August 2007)

More warnings came in early 2008 long before the Lehman bankruptcy:

ECB Balance Sheet Signals Sinking Quality of Credit Collateral, Jan 25, 2008
Is Europe's Banking System Broken Beyond Repair?, January 29, 2008

The alarm on Europe going into high-speed money-printing mode was rung in 2009:

Run For the Hills: ECB Will Debut at the Monetizing-the-Debt Party, (May 08, 2009)

And this post from 2010 is more valid than ever:

Euro Until the Endsieg

I have nothing to add at this point of time and remain finger-tapping as the collapse is inevitable.

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Eurozone Bailout Numbers Go Stratospheric From €440 billion to €4 Trillion

2011-09-26T18:57:00.001+02:00

Yo-yoing markets mask the ongoing cluelessness in the Eurozone where guesstimates about the size of the European Financial Stability Fund (EFSF) have long gone stratospheric. While original plans set out at €440 billion, we have entered trillion territory by now, with the highest proposal coming from European think tank CEPS who wants to replace the EFSF framework with a European bad bank. Such a bad bank could leverage its original capital base roughly ten times to aforementioned €4 Trillion.
This record-setting figure shows that financial markets have long lost touch with the real world and would burden each Eurozone inhabitant with some €13,300 in debt.
There is only one obstacle: the EFSF has yet to come up with the first €440 billion and the list of balking Eurozone members just got a little bit longer. After initial protests by Austria, Germany and Finland it is now the Netherlands and Slovakia that voiced resentments against sinking more billions of debt into the rescue of the common currency that cannot work.

Reuters had this write-up on the latest state of the Eurozone's woes:

Europe is working to ramp up the fire-power of its bailout fund amid growing alarm over its slow handling of a debt crisis that threatens to derail a global economic recovery, but European policymakers disagree over the best course of action.
Many of the options to bolster the 440 billion euro European Financial Stability Facility (EFSF) have catches, including opposition from countries like Germany, which fears a replay of its disastrous economic policies of the 1920s.
Meanwhile, euro zone officials played down reports on Monday of emerging plans to halve Greece's debts and recapitalize European banks to cope with the fallout, stressing that no such scheme is on the table yet.
Rough calculations suggest the EFSF, which borrows its funds from the markets backed by guarantees from euro zone states, might cope with a bailout of Spain but that it would not have enough ammunition if Italy needed help.
The EFSF is already committed to providing 17.7 billion euros in emergency loans to Ireland and 26 billion to Portugal.
In addition, it takes over the remainder of Europe's contribution to an initial bailout of Greece, which is likely to require around 25 billion euros, and is expected to provide two-thirds of a 109 billion euro second bailout of Greece.
Taken together, the EFSF's current commitments total at least 142 billion euros, leaving it 298 billion euros.
A package for Spain might top 290 billion euros, according to some estimates, while a rescue bill for Italy could total almost 490 billion euros.
Some experts suggest doubling the EFSF. Others talk of boosting it to "several trillion." But the way to restore confidence, which will be determined by the reaction of stressed markets, goes beyond simple mathematics.
One way of bolstering the EFSF's size, being proposed by the Center for European Policy Studies, a think tank in Brussels, is to turn it into a bank.
This means the Luxembourg-based vehicle could lend money to countries in difficulty and turn to the European Central Bank to refinance such loans rather than having to rely solely on its limited capital base.
Banks typically lend roughly 10 times their capital, and experts who have drawn up this model believe the EFSF could do the same.
That would mean the 440 billion euros of capital in the facility could in theory be transformed into more than 4 trillion euros of fire-power.
But the reality is not that simple. The EFSF would only qualify to receive credit from the ECB that was as good as the collateral, for example Spanish government bonds, that it has to offer.
If the EFSF buys these from the Spanish government directly, then a market discount to reflect the risk of default has to be applied, in addition to the standard haircuts the ECB charges for collateral. This reduces the amount of credit the EFSF could get from the ECB.
But it is political opposition rather than technical hitches that pose the biggest and perhaps insurmountable hurdle.
At the core of these are concerns recently aired by German Bundesbank chief Jens Weidmann that the ECB may already be overextending itself.
The euro zone's central banks and the ECB have a combined capital base of 82 billion euros. It has already lent 535 billion euros to banks and bought a further 150 billion euros of government bonds to prop up the market.
So far, Germany, the euro zone's chief paymaster, and the ECB are opposed to the idea, suggesting it has little chance of making it beyond the drawing board.

So we conclude amidst all that white noise emanating from political circles:

The ECB is at the end of its fire power and has NO MONEY.
The EU has NO MONEY either.
From 17 Eurozone members all run deficits with the exemption of dwarf-sized Luxembourg, meaning they have NO MONEY too.
On the next level of debt we find regions, provinces and municipalities who have NO MONEY.
Go down to the consumer level and you will find still more debts, but NO MONEY.

Which leads to the safe prediction that there will be no orderly unwind of the biggest debt mountain in history but the situation will tread on from one emergency meeting to the next round of political announcements worth not more than the hot air created by their speakers.

Market participants are increasingly reluctant he ongoing stream of BS.

Forgotten are all principles like observing existing laws. All the safeguards for the Euro from the Maastricht treaty have been ignored from the moment they should have stopped the mess from growing bigger.

If the European Central Bank will indeed cut its leading interest rate from a current 1.50% to 1% on October 6 it too will have abandoned from its single mandate of fighting inflation in order to help ailing banks with an artificial steepening of the flat Euro yield curve.

Policy makers still ignore reality. German chancellor Angela Merkel dug her heels in the ground on a German TV show last Saturday, uttering her mantra that Greece will not go bankrupt for the umpteenth time. Latest polls show that 4 out of 5 Germans oppose Merkel's position.

While the Greek have been taking to the streets, this joke makes the round in Germany:

"Why aren't the Germans openly protesting the Eurozone bailout?"
"They have no time to protest. They are working double shifts to pay the PIIGS debt."

Market participants are increasingly reluctant to buy any of the continouos stream of BS and bet on a string of defaults in the Eurozone. This trader compares the debt crisis with a cancer and sees millions losing their savings within a few months (h/t Zerohedge). Watch this fascinating moment of a trader baring his mind. One thing is certain: This guy will never be invited to a CNBC talk show.

"This economic crisis is like a cancer, if you just wait and wait hoping it is going to go away, just like a cancer it is going to grow and it will be too late!"

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European Collapse

2011-09-25T18:28:00.000+02:00

This video was made a year ago and is more current than ever. The only fact that has changed are the numbers: debts have grown every day since it was posted. Enjoy a laugh amidst the biggest economic crisis in history.

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Countdown to the Eurozone Bank Run

2011-09-23T09:32:00.000+02:00

A comatose interbank market and corporate and fund money fleeing Eurozone banks in droves have rung in the countdown to the Eurozone bank run that could become reality as early as next Monday.
The free fall in all major markets and commodities was only negatively outperformed by European banks whose shares fell to new 2011 lows.
Gossip about major institutions like Lloyds of London withdrawing all deposits from Eurozone banks and countless stories in German media about corporations that follow suit are the first indicators about a bank run that may come as soon as Monday when one major Eurozone bank may have to announce its insolvency.
A cascade of downgrades is only more fuel to the market fornication as we have never seen it before. As we are closer to the Endsieg, banks are resorting to a dog-eat-dog strategy, scrambling to save their own skin in a world where the only providers of liquidity are central banks letting their money printing presses spin 24/7.
Mounting rumors expect the announcement of a major bank closing its doors as soon as Monday and market speculation focuses on Unicredit and Societe Generale.

Unicredit shares dropping like a stone

The first bank to announce insolvency will not be the last one. It will be only the first domino piece that will destabilize the rest of the banking sector because interwovenness has reached the point where everybody owes everybody else.

Being asked about the ultimate safe haven I still have only one answer. Precious metals bullion are the only asset that is not the liability of someone else.
Never mind that silver FUTURES dropped 9% on Thursday and gold breached the 50-day moving average. As long as market participants with unlimited credit from the Federal Reserve can sell x,xxx tons of paper gold or paper silver within seconds in regular gold/silver slam scams the ride will be stormy but ultimately the holders of the physical will prevail.

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It Takes Only a 4% Adverse Move and Austria's Banks Are Out of Business

2011-09-16T17:41:00.000+02:00

Austria's banks sat on a derivative hoard valued at €1,786 Trillion at the end of June 2011. The volume of off balance derivative items is €99 billion more than at the end of 2010 but €800 billion less than a year earlier.
This dwarfs cumulative core capital of the banking sector, which stood at €75 billion or roughly 1/23rd of outstanding derivatives. It will take only a little more than a 4% adverse move against the desperate bets of the banks in the Alpenrepublik and they will be wiped out, can be read from figures released by Oesterreichische Nationalbank (OeNB) (German language only) on Wednesday and overlooked by all media so far.
The press release does not waste one word on the only trillion-figure that can be found in the economy of this 8-million small country. Austria's GDP rose 4.1% to €286 billion in 2010, according to official data.
Taking a clue from other affairs in Austria, where silence always means that something's boiling up, this figure serves well as a reminder that every Eurozone country has an explosive banking problem lingering in its backyard.

Already one year ago central bank governor Ewald Nowotny was not able to provide an ad hoc figure of the actual risk of these off balance items that are usually hidden away from prying eyes in undercapitalized bank subsidiaries. A year earlier the volume was €2.6 trillion. Industry insiders said at that point of time the actual risk after netting out short and long contracts may lie somewhere between 5% and 10% or €90 billion to €180 billion, based on the most recent data.
While the overall year-on-year reduction looks advantageous as banks reduced their risks, it makes one wonder what Austrian banks are betting on. This does not look as if they would hedge their risky East European lending activities and neither does it appear that Austrian banks are running book profits on the more profitable CDS contracts on PIIGS and other irrecoverable debts on the left side of their balance sheets.
Austria Will Soon Meet the Limelight of International Attention
Austria will soon meet the limelight of international attention again. On Thursday the ruling coalition tried to set a date for the necessary vote on change of Austria's constitution that would allow the Eurozone to proceed on the ill-fated way of Eurobond issuance. Due to the opposition from the Green Party and the two xenophobic parties FPÖ and BZÖ the vote did not reach the obligator 2/3 majority in the upper house.
The Green party had already issued a warning to the bank-controlled coalition in June, threatening to boycott a pro-Eurobond vote as long as Austria does not ensure that money lent to the PIIGS will be repaid absent the factor of pure hope.
The Greens got unexpected support from conservative hardliner and finance minister Maria Fekter. on Friday In an interview with Austrian press agency APA she said Austria will reject a top-up of the €780 billion European Financial Stability Fund (EFSF). She also addressed US Treasury Secretary Tim Geithner and advised him to put his own house in order before handing out fiscal advice to the Eurozone.
Austria's coalition is getting shattered day after day by new scandals alleging corruption involving a string of partly state-owned companies like Telekom Austria, public railways, the purchase of 12 Eurofighter jets (only 2 are operable during daylight hours), alleged kickbacks in the privatization of the country's real estate holdings. Scandals have so far centered on the conservative ÖVP and their former xenophobic coalition partners. But since Thursday allegations about current social democrat chancellor Werner Faymann concerning advertising of public companies in preferred media begin to make bigger and bigger headlines.
It does not only look like this little beautiful country that would love to dance year round on the by now infamous opera ball, where the level of celebrities has degraded from Sophia Loren to Berlusconi's former Bunga Bunga chick in the last decade, Rubina, has problems.
Austria will see a system collapse that is still mistaken as a run-of-the-mill crisis by officials who are increasingly busy holding on to their seats and the comfortable state pensions that come with it. Expect a rapid development aka deterioration once denial mutates into hesitant acceptance of the fact that matters are going to change in a big way.

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