European Central Bank
The President of the European Central Bank, Mario Draghi, looks more and more like the bad guy from the B-rated horror movie series Saw with every passing day. Jigsaw was his name. Or maybe I should say "is" his name, because that series apparently never ends just like the tortured European sovereign debt and banking crises. For those unfamiliar, the premise behind the movie was that Jigsaw would create extremely uncomfortable situations for people, both psychologically and physically, and then watch how they react.
It started off with people who had to saw off their arms, gouge out their eyeballs or murder another person to escape from some sort of death trap. The second movie made the scenarios more complex and had people shoving other people into pits full of dirty needles to reach a key that unlocks a door in a house that leads to yet another booby-trapped room. There were another five or six movies after that one which I didn’t feel inclined to watch, but I imagine the premise didn’t change much.
It was all originally supposed to be about an old cancer patient (Jigsaw) who teaches others about the true value of life in clever ways, but was really just about another pathetic, sadistic man who manufactures impossible situations and gets off on watching other people suffer. Sounds a lot like what’s going on in Europe, huh? By now, everyone and their pet dogs are familiar with the pan-European motto – AUSTERITY OR DIE!
We cut off the limbs to save the core and throw our fellow man under the bus, because they tell us that those are our only collective choices. Mario "Jigsaw" Draghi, especially, has been cast in the role of the wise old man who serves as the “neutral” arbiter of the European Monetary Union. However, when we look beneath the surface, it is clear that he is anything but neutral, and is simply running a rigged game for the benefit of the major European banks (with the willing aid of technocratic politicians such as Lucas Papademos and Mario "Three Card" Monti).
Draghi constantly repeats the message that fiscal/structural adjustment (austerity) is both the only and the best way to preserve the finances of peripheral EU nations, and miraculously make them competitive in the global economy. That is a false choice, plain and simple. The goal should not be to preserve the Eurozone in its current form, because that only benefits a very small and elite group of corporate executives. Requiring painful austerity in the name of that goal is nothing more than a torturous and sadistic exercise involving millions of people, under the guise of acting under some sort of eternal economic wisdom.
While the Eurocrats like Mario preach on about the virtues of responsible finance, they will simultaneously bail out large financial institutions who have clearly been the most reckless lenders AND borrowers of them all. What else do you call it when the ECB gradually cuts its interest rate for bank loans to zero, subsidizes unlimited euro for dollar liquidity swaps with these banks, purchases their toxic assets on the secondary market, accepts all manner of distressed collateral from them and makes up its own rules as the game progresses?
Most recently, the ECB has decided that it will simply swap the Greek bonds on its balance sheet for entirely new ones that are immune to collective actions clauses, which means the ECB will not be forced to take any losses on its Greek bonds while investors in the private sector will. Some analysts have already pointed out that this move makes a mockery out of existing contract law and will further crowd out private investment in peripheral sovereign debt. That is certainly true and the reason is outlined below by Joseph Coterrill for FT Alphaville.
There’s been an enormous, justified fuss over the ECB swapping its Greek bonds held in the Securities Markets Programme. Ultimately though it is – in practical terms – about getting away with the least egregious level of seniority for the ECB now, not avoiding ECB seniority altogether.
The exchange is to stop the bonds getting retroactive collection action clauses (thus, exposing the SMP to forced losses) in a Greek parliamentary vote likely to be held next week, as part of the “stick” in the PSI offer to bondholders.
The ECB’s swapped bonds will be just like the old ones, sharing the same payment features etc, except (effectively) the bonds’ serial numbers are getting filed off. It’s probable that the legislative act will list the Greek law bonds to be CAC-ed by their series or ISIN, which would have swept up the ECB’s holdings. No other holder gets to ghost out like this.
It’s perhaps not so much that losses would be forced on the SMP – but that they would be heavy or in line with the PSI’s 75 per cent haircut to net present value. Thus below the SMP’s purchase price. The central bank treats that kind of loss as monetary financing (see Draghi’s points in February’s press conference.) Friday’s swap has reportedly switched the ECB’s bonds at par, thus generating a paper profit for the SMP.
Draghi has made this an issue of adhering to treaty restrictions against direct financing of Eurozone governments, but the real story here is yet another one of preserving the status quo financial system. The ECB has purchased about €56 billion worth of Greek bonds under its SMP program in 2010 at 20% discounts to par value, and analysts generally conclude that its participation in the PSI at 75% would lead to a loss of about €10-15 billion, which is a decent amount. However, the real threat would be the precedent set for its much larger combined holdings of Portuguese, Spanish and Italian bonds, which total about €160 billion.
It is… very difficult to see what the alternative was.
What could you do instead?
a) Let Greece write its law specifically excluding the ECB by name, rather than allowing its holdings to silently drop out via the ISINs
b) The direct route: Let Greece go ahead and insert retro-CACs into the ECB’s holdings
c) Abandon the retro-CAC law altogether
We think a) would have made the ECB’s seniority much more egregious. For b), certainly the momentum of PSI is maintained… at the expense of throwing the central bank into legal risk and probably, serious infighting as a full EU Treaty violation hoves into prospect. How long would the entire SMP portfolio last in that scenario. It’s c) that seems a total non-starter; a negotiated write-down is already hanging by a thread given the attitude of northern eurozone governments.
The original purpose behind the Greek PSI program was to keep Greece from defaulting on its debts in a "disorderly" manner, exiting the Eurozone and triggering financial contagion throughout European bond markets. If the ECB is forced to take a haircut on its bond holdings as a part of this process, then that drastically increases the cost of maintaining the Eurozone ponzi to core countries such as Germany. It would render the secondary markets purchases of peripheral bonds by the ECB an act of on-boarding credit risk and transferring it to the core without really making any new long-term credit available to distressed sovereigns.
Once the solvency of the ECB is called into question, the game is up and the major European financial institutions lose their explicit and implicit backstop of last resort (the central banks of the Eurosystem and the German Treasury), which then leads to a banking crises many times worse than that of 2008. So this latest maneuver by the ECB is really nothing more than a means of extending and pretending for as long as humanly possible. It is true that no official sector haircuts also increases the direct cost of bailing out Greece, but, then again, the decision may have already been made to let Greece exit the EMU after its debts are restructured.
Dimitrios Giannopoulos of Athens News has also discovered that the ECB bond swap may simply add another €60 billion of fresh debt to service onto the Greek government's balance sheet and, therefore, the Greek people (via ZeroHedge).
But the confidential GLK document notes that the parallel ECB bond swap at par value must also be financed by the EFSF and added to Greek debt.
"The old ECB bonds will be transferred to a treasury account of the Greek state for the duration of the PSI bond swaps, and will therefore be charged on the level of Greek debt by the additional amount of 56.3bn euros," says the GLK document.
This means that the funding of the 56.3bn euro ECB "bond swap" must be "financed" by the EFSF together with other components of PSI funding under the second EU-IMF bailout plan for Greece whose exact size remains to be decided by the Eurogroup in today's meeting of the 17 finance ministers in Brussels.
It's very unlikely that any EU/IMF bailout plan will actually account for this additional debt burden of Greece, and this is perhaps yet another way of making sure that Greece is forced out of the Eurozone when it inevitably fails to reach "sustainable" debt/GDP levels. The bailout money, which is now proposed to be held in escrow until Greek somehow meets the impossible terms of its deal, will never make it to a single living soul in Greece. It will, however, make it directly to the banks, since the escrow condition will not restrict payments for interest on debt, which has now grown even larger courtesy of the ECB.
While the Troika, Greek politicians and its private creditors continue to perform their kabuki theater, Mario Draghi is doing everything he can to make sure that the ECB will be able to preserve the Eurosystem’s banks no matter what temporary deal is or is not reached, with or without Greece. That is obviously what a central bank does, and Draghi realizes there are many more players out there who will submit to his game even after Greece defaults (see Portugal, Ireland Spain and Italy). The only thing that stands in his way now is the sheer complexity and speed of the situation in credit markets, as well as the public squares.
"I WANT TO PLAY A GAME."
That’s what Jigsaw would tell his victims in an unsettling tone before he set them loose in a torturous maze with only a few very painful options available to choose from. Only one person survived these games and she became Jigsaw’s protégé and assistant, but probably ended up dying later in some ill-conceived plot line (I have no idea). The fact is that this is real life, and while the Euro crisis and GFC in general may be almost as constricting and needlessly torturous as the frames of a B-rated horror series, the victims do have at least some chance to tell the bankers, bureaucrats and politicians - "TOO BAD". We don’t want to play your game anymore, and we won’t.
It’s hard to miss the irony in the fact that perhaps the biggest stumbling block to the status quo financial elites in the Western world, who are attempting to kick the can a bit farther down the road, aside from the sheer impossibility of the underlying math, is democratic elections. 2012 may very well be the year where decades of political theater for the benefit of large corporations and financial consumers from sea to shining sea come back with a vengeance to bite the status quo politicians in the ass.
And let’s be clear, it is the run-up to elections and the accompanying theatrical drama that will prove to be the most difficult for the status quo, rather than the actual outcomes of these elections. There is little doubt that almost all of the politicians will end up singing the exact same tune once they are actually in office. The real problem for the perennial can-kickers is that they simply do not have enough time to wait around for the elections to finish and the winners to take office.
First and foremost, we have the elections in Greece to replace the unelected, technocratic government that was force-fed to its people late last year. Due to the increasingly large and vehement public opposition to bailouts for the banks and austerity for the poor, politicians in the "opposition" parties must be very careful not to align themselves too much with the Troika and it’s puppet PASOK party (of which former Prime Minister Georgios Papandreou was a member).
That’s why we see the leader of the New Democracy party, Antonin Samaras, who has his eyes fixated on the position of Prime Minister (I’m not really sure why anyone wants to be the leader of Greece anymore), continuously flounder and backtrack on what exactly he will agree to in the latest austerity package that all of the bailout money has been conditioned on. Last year, Samaras refused to sign any written commitment to the terms of the austerity package, which has since expanded, before finally giving in.
That was all just a prelude to the main show which is taking place now. Samaras has once again "pledged" in writing to implement the Troika’s austerity program, but is simultaneously saying that the program may have to be adjusted once he is in office, since it does not do enough to promote growth (no kidding!). Helena Smith reports on what she was told by a top adviser to Samaras for The Guardian:
"The letter has just gone. We have no problem expressing committment to a stabilisation progam. We are all for eliminating the deficit, controlling the debt and going on with the privatisation program things that right from the beginning we proposed.
It [the letter] makes very clear that we have full respect for the long-term objectives, targets and key policies of the programme.
We also said we should modify the plan to allow for prompt [economic] recovery. We don't want to make recovery a top priority but we insist that it becomes an additional priority, that it be be applied in tandem with other policies to allow the economy to breath. Is this such an irrational, stubborn view when the [rescue] plan to date clearly hasn't worked?"
It's not because the objectives are wrong. From the beginning we agreed with them. But there is a missing ingredient.
Even if it was perfectly implemented the numbers didn't add up. We are not saying that we are against austerity but we have to change the mix and allow for recovery.
We are feeling a little embarassed that again and again they want us to show our committment to the plan. When we say prioritize recovery we mean we want to discuss it with them, not do anything unilaterally. Even if they allowed us to do whatever we wanted to do we would still stick to the programme."
How about those statements for floundering and backtracking?? Now that Germany, Finland and the Netherlands are kicking around the idea of delaying Greece’s bailout money until after the elections, Samaras will have to put on an even bigger show about how he will protect the interests of Greek workers and pensioners against the abrasive Eurocrats, and perhaps even promise not to sign off on the current plan. Otherwise, everyone will just assume he is going to do exactly what the Troika requires of him once he gets in office, like the PASOK party he is running against, which is quite a safe assumption.
Secondly, there are elections in France and incumbent President Nicolas Sarkozy has been steadily dropping in the polls against Francois Hollande of the Socialist Party. As of early February 2012, Hollande is almost running at his all-time high of 60% against Sarkozy. If you thought Samaras was being a thorn in the side of the pan-European austerity hawks, then take a look at what Hollande has been saying. Steven Erlanger for the New York Times reports:
"The front-runner for the French presidency, the Socialist candidate François Hollande, criticized European policy on Greece on Monday, saying that mandatory austerity measures were too severe and would never produce the desired results because "everyone knows" that "there is no rebound in growth in Europe and in Greece."
Mr. Hollande’s remarks, one day after the Greek Parliament adopted austerity measures demanded by the European Union and the International Monetary Fund, while violent protests left many buildings in Athens in flames, offered a critical assessment of European and Greek leaders’ handling of the crisis. The Greek government, he said, would "have a short life," while the austerity plan forced on Greece amounted to a "purge."
The French presidential race is heating up with President Nicolas Sarkozy expected to make his candidacy for re-election official this week. Mr. Sarkozy is still running behind Mr. Hollande in the opinion polls for both the first round of voting on April 22 and in a runoff on May 6. In a luncheon interview with a group of foreign journalists here, Mr. Hollande was pleasant and expansive, but remained vague on the details of his programs."
Right, Politics 101 - keep all your plans and policies for office vague and uncertain, but stay sharply critical of the current administration. Yet, that’s exactly what the markets can’t continue to handle right now – vagueness and uncertainty about the future of fiscal and monetary policy. The French sovereign bond market has so far remained relatively quiet throughout the whole crisis, except for a brief spike upwards in the 10-year yield late last year. If all of Sarkozy’s repeated promises of implementing domestic austerity come into question, though, France's credit situation could change very fast, especially since it has already been downgraded from AAA by S&P and put on “negative outlook” by Moody’s.
We also have a Spanish regional election in Andalucía on March 25, which is a bit more trivial than those above, but it still has the potential to create some major disruption in the Spanish bond market over the next month. Spain has been one of the worst hit economies during the financial crisis, with its unemployment rate reaching 23% at the end of 2011, and it has so far failed to offer the Troika any "credible" austerity plan for reducing its budget deficit. Angela Benoit reports for Bloomberg:
"Spain’s month-old government may postpone deeper budget cuts until after a regional election in March, adding to the risk the nation misses its deficit goal for the second year.
The ruling People’s Party, led by Prime Minister Mariano Rajoy, will contest an election in the southern region of Andalusia to end 30 years of Socialist rule. Spain’s 10-year bond yields have risen 10 basis points to 5.5 percent since the PP government took over on Dec. 21, increasing the rate to 359 basis points more than German bunds of similar maturity.
"Rajoy doesn’t want to get burnt before the Andalusian election," Antonio Barroso, an analyst at Eurasia and a former Spanish government pollster, said in a telephone interview. "They’re so crucial for the PP that it won’t take any kind of measure that would undermine its ratings in the region."
Rajoy needs to slice the equivalent of 3.6 percent of gross domestic product off the budget deficit this year to meet a European Union target, just as the economy may be entering its second recession in two years. Postponing steps until after the March 25 election risks undermining confidence in Spain’s ability to meet its goal, which Fitch Ratings already has "doubts" the country will reach.
"Rajoy has yet to explain how he will reduce the deficit when the economy is shrinking," said Georg Grodzki, global head of credit research at London-based Legal & General Investment Management, which oversees about $515 billion. "I don’t think Spain can afford to wait for more than two months at the most."
There's obviously nothing Rajoy can do to achieve a "sustainable" budget deficit in Spain while the economy contracts, and implemented austerity will only make the latter worse, but he also can’t afford to not offer up any bogus policy promises. The regional election is now getting in the way of him doing so, though, because the Spanish people are simply against any Greek-style "structural reforms" (they are not senseless and can see what has happened over there). Rajoy realizes such opposition exists, and will therefore hold off on submitting a budget until after the election. It’s entirely unclear whether the credit markets will hold off on pounding Spanish bonds into the ground, though.
Last, but certainly not least, we have the 2012 Congressional and Presidential elections in the U.S. I have suggested before that the Obama Administration, in its consistent attempts to present a rosy economic story before November 2, may have effectively killed the capacity of the Fed to "print money" through QE3 asset purchases [Who Killed the Money Printer?]. That in and of itself would be a HUGE blow to the status quo elites who are banking on the Fed to step in with at least a trillion dollars or so in easing to keep the markets happy.
But the electioneering syndrome certainly doesn’t stop there. We also have the Republican Presidential front-runners and those up for re-election in the Senate who will harshly criticize and block any and all attempts of Obama to launch any significant stimulus measures or help bail out Europe through additional contributions to the IMF. Since the Republicans control the House of Representatives, these full frontal blocks will not be hard to carry out. For example, The Hill reports on the opposition to Obama’s latest mortgage refinancing plan.
"The White House has recently promised major steps to boost the housing market and help struggling homeowners, but bruising fights with Congress loom over major pieces of the plan.
The housing market is widely seen in Washington as still struggling in the wake of the subprime mortgage crisis, and weighing down what would be a more robust economic recovery.
In recent days, the White House has made a concerted effort to address the housing sector, rolling out new plans to help homeowners avoid foreclosure and boost the housing sector.
But while the administration can nibble around the edges and implement changes, it needs Congress and regulators to get on board with any major initiatives, and this presents significant challenges."
There are, of course, many other elections occurring around the world, but these are the "democratic" ones that could be the most disruptive to maintaining the status quo, hopium-filled market environment over upcoming months. And, as mentioned earlier, the political theater of these elections is by no means the only thing that could throw a spanner into the works. Here’s another obvious one – all of the non-existent capital that was promised to backstop the Euro periphery through the IMF, EFSF, private bondholder "haircuts", etc., doesn’t materialize! All in all, 2012 should be a very disturbing year for the extenders and the pretenders alike.
Unknown Aftermath April 1865 "Richmond, Virginia. Destroyed Richmond & Petersburg locomotive." Aftermath of the Confederate evacuation in which Richmond's business district, accidentally torched by its own citizens, burned to the ground, the flames extinguished only with the aid of the occupying Federal Army
In response to the latest suicidal austerity demands of the Troika hit squad, protestors in Greece burned a German flag while the Greek daily paper Dimokratia adorned its front page with the headline, “Memorandum Macht Frei” [memorandum makes you free]. These elements of the populace are unsurprisingly reacting to the fact that bureaucrats in Washington, Berlin and Brussels are signing away the living standards of the Greek people while telling them that it’s all being done for their own good and is absolutely necessary for peace and prosperity in Europe.
Ambrose Evans-Prichard pointed out in a recent blog post that the Troika’s plans for Greece are far worse than what was demanded of [or offered to] Germany after the second World War, and much more similar to what was demanded of it after the first one (we all know how well that worked out). In 1953, the Western powers granted Germany 50% relief on its external debts with very few conditions attached, and now Greece is struggling to get that same amount with absolutely impossible conditions attached.
The main reasons for this difference in treatment are a) Greece is not nearly as strategically important to these Western capitalist powers as Germany was back then and b) the financial elites simply cannot afford to create a precedent of debt forgiveness in the current environment of unprecedented public and private debts. What is perfectly clear, though, is that the continuously shape-shifting complex of bailout, haircut and austerity measures advocated for Greece have been destined to fail since they were first conceived.Germany's Carthaginian terms for Greece
The EU deal will in theory cap Greece’s public debt at 120pc of GDP in 2020 - at the outer limit if viability - after eight years of belt-tightening and depression, if all goes perfectly.
Since nothing has gone to plan since Europe’s austerity police began to administer shock therapy eighteen months ago, even this grim promise seems too hopeful.
The Greek economy was expected to contract by 3pc in 2011 under the original EU-IMF Troika plan. In fact it shrank by 6pc, and is now entering what the IMF fears could become “a downward spiral of fiscal austerity, falling disposable incomes, and depressed sentiment.”
Manufacturing output fell 15.5pc in December. The M3 money supply crashed at a 15.9pc rate. Unemployment jumped to 20.9pc in November, up from 18.2pc the month before, and is already above the worse-case peak pencilled in by the Troika.
Some 60,000 small firms and family businesses have gone bankrupt since the summer, the chief reason why VAT revenues dropped 18.7pc in January. The violence of the slump is overwhelming the effects of fiscal retrenchment. So much Sisyphean effort for so little gain.
You can argue that Greece has dragged its feet on EU-IMF demands - though the IMF is careful not make such a crude claim, offering mixed praise in its last report.
But as Professor Vanis Varoufakis from Athens University says: “If we had better implemented the measures, the worse it would be: the economy would be comatose, and the debt-to-GDP ratio would be even more explosive.”
So yes, like Germany accepting the terms of the Carthaginian Peace with a gun to its head in 1919, Greece signed “an insincere acceptance of impossible conditions” - to borrow from Keynes - hoping that sense would prevail with time.
But now that politicians from nearly all parties in the Greek Parliament have once again passed a ruinous fiscal austerity package (most likely without bothering to read it), as both the technocratic leader Papdemos and the “opposition” leader Samaras warned that all hell would break loose if they voted against it, the people of Greece and of the world should rid themselves of any misplaced anger and remember where all the wealth is really going - supranational bankers and corporate elites.
Bureaucrats and politicians in Athens are just as complicit as those in Berlin and in Washington, and they are all serving a higher master. It’s not the German people who are benefitting, and, in fact, they are also paying a very hefty price to keep an impossible currency union in one piece. Through the IMF and EU bailout mechanisms, Germany has already sunk tens of billions of euros into Greece for no benefit whatsoever, except buying some time for “firewall” protections from financial contagion (i.e. the ECB’s LTRO).
Even that temporal benefit is very close to running out, as German politicians have reached the point where they may be upping the ante so high that the current bailout and austerity plans will be stopped dead in their tracks and Greece is forced to leave the Eurozone (of their own volition, of course). The tone of Merkel’s administration has noticeably shifted towards strong implications that nothing Greece does will be good enough anymore. German Finance Minister Wolfgang Schauble said on Friday that “we can’t keep sinking money into a bottomless pit”.
The policy cannot command democratic consent over time. The once dominant Pasok party has collapsed to 8pc in the polls. Support is splintering to the far Left and far Right, just like Weimar Germany under the Bruning deflation.
The next Greek parliament will be packed with “anti-Memorandum” fire-breathers, and any attempt by Greek elites to prevent elections taking place must push street protests towards revolution.
In a sign of things to come, the Hellenic Police Federation has called for the arrest of Troika officials on Greek soil for attacks on “democracy and national sovereignty".
It is clear that Germany’s finance minister Wolfgang Schäuble wishes to expel Greece from the euro, calculating that Euroland is now strong enough to withstand contagion, and that the European Central Bank’s `Draghi bazooka’ for lenders has eliminated the risk of a financial collapse.
Schauble’s mindset and motive are much less than pure, but he is right - Greece cannot survive in the Eurozone without any bailouts or austerity, and it can’t survive with them either. Even the most measly sums of bailout money that have already been authorized to be used for the Greek people are not being delivered to them, because the Greek government is having trouble “absorbing” the funds. English Katherimini reports:
The European Commission is closely monitoring 181 projects in Greece, for which some 11.5 billion euros will be dispersed. While much of this money is going toward infrastructure schemes, 4.3 billion euros is being allocated through the European Social Fund for projects to help with employment.
However, Kathimerini understands that of these 4.3 billion euros, more than 1.1 billion has not yet been absorbed despite the unemployment rate surpassing 20 percent in November. The schemes are meant to be overseen by the Education and Labor ministries but they are finding it difficult to get the projects off the ground.
The Labor Ministry says that the schemes it is responsible for were to be run by the OAED employment organization, but sources said that it is too weighed down at the moment dealing with the rapidly increasing number of unemployed Greeks. The total figure of Greeks without jobs passed the million mark in November.
As for the Education Ministry, sources said that staff shortages are making it difficult for officials to plan the programs that will absorb the EU structural funds which Brussels has made available.
The Germans must look at that and correctly assume that there is absolutely no reason for them to continue backstopping these funds for Greece, which is implicitly a bill for the rest of the EU periphery as well. They may have greatly benefitted from the all-consuming debt slaves of Southern Europe in the past, but not any longer. The only clear and efficiently carried out purpose of the bailout measures is keeping the major banks solvent as they scatter toxic assets across the smoldering remains of European and American taxpayers, and as their executives and directors continue to receive outrageous levels of compensation for nothing but negligence and fraud.
All of the major western banks are given access to virtually unlimited cheap credit at their respective central banks through ZIRP, discount loans, LTRO, etc., while the average citizens and small businesses have seen access to affordable credit plummet for years now. Thousands of these businesses, which actually have the capacity to hire workers, go bankrupt every month, while the major banks are kept out of bankruptcy proceedings at all costs. In the meantime, they can fraudulently foreclose on your home and settle any and all litigation surrounding the issue out of court in one fell swoop.
On top of that, many European banks have been at least partially nationalized and therefore have explicit guarantees from their respective governments, while those other wholly-private fat cats have to make do with only implicit guarantees. Why should the banks even care about taking a 50-70% haircut on the value of Greek bonds when the bailout funds will be directly transferred to them, their governments will be on the hook for any capital shortfalls and they can post all manner of toxic waste to the ECB as collateral for unlimited 3-year funds? These are the true perpetrators of mass injustice and exploitation in our system; our urban and suburban consumer complexes are their concentration camps.
They are the only ones who stand to gain from the systematic gutting of social safety nets and the imposition of slave wages across Europe and North America. Everyone else, including the Greeks, the Germans, the French, the British, the Americans, etc. stand to lose and lose big. The Greek people, especially, are now at a very important crossroads that will be difficult to navigate. They must stand up against the degrading farce that took place tonight in Athens behind closed doors, but they must also refrain from being swept up into anti-German, reactionary fervor. At the end of every painstaking day, only recognizing the true nature of collective oppression can make you free.
After the Fed’s latest announcement on January 25, in which the central bank said very little more than the obvious ("exceptionally low" fed funds rate at least through late 2014), we have returned to typical speculations about how much “money printing” (or quantitative easing) by central banks we will see in upcoming months to accompany these low rates. Perhaps the Chief Speculator is Tyler Durden at ZeroHedge, who never backs down from an opportunity to re-assert (or manufacture) the near-term bullish arguments for gold. This article will review some of the more notable and ridiculous opportunities seized over the course of only a few day following the FOMC release. Each one was a relatively short and sweet post that showcased a nifty-looking correlation chart. I do realize that Durden wasn't claiming any of these posts as an extensive and irreproachable analysis, but the fact is that he decided to put them up for a reason. Soon after the Fed’s announcement, ZH ran the following headline and analysis [emphasis mine]:Market Now Pricing In $770 Billion Increase In Fed Balance Sheet As we have pointed out previously, the primary if not only driver of relative risk returns (because in a world of relative fiat value destruction, it is all relative, except for gold which is revalued relative to all on a pro rata basis), will be who of the big two - the Fed and the ECB - can print more. And up until now, at least since the end of December when the market "suddenly" realized that the ECB's balance sheet has soared to unseen records, the consensus was that it was the ECB that would be the primary source of easing. Especially when considering that there is another ~€500 billion LTRO due on February 29. Yet today's rapid reversal in the EURUSD, driven by Bernanke's uber-dovish comments suggest that something has changed and that the Fed is now expected to ease substantially. How much? For that we look to the latest balance sheet cross-correlation, where if we go by simple correlation, the market is now pricing in (based on the EURUSD cross ratio) that the relationship of the two balance sheets will rise from a multi year low of 1.08 as of a few days ago to 1.15, at least based on the rapid move in the EURUSD higher as can be seen in the chart below. Indicatively, the actual value of the two balance sheets is €2.706 trillion for the ECB and $2.92 trillion for the Fed (or a 1.08 ratio). So now that the EURUSD has risen as high as it has, it implies that the pro forma "priced in" ratio is about 1.15. But wait: one should also factor in the fact that the ECB's balance sheet will rise by at least another €500 billion in just over a month, which will bring the ECB's balance sheet to €3.2 trillion. Which means that to retain the 1.15 cross balance sheet relationship, the Fed's own balance sheet will have to rise to $3,687 billion, or a whopping $767 billion increase!"
Essentially, he is saying that the reaction in the EUR/USD pair after Bernanke’s statement had implied that the movers and shakers in the currency markets expected the dollar to be devalued by the Fed in the near future through quantitative asset purchases. Since the pair moved to levels that "imply" a ratio between the size of the Fed and ECB's balance sheets higher than currently established (based on loosely-correlated movements over the course of 2 years), and the ECB is expected to unleash at least another €500bn next month, we can project that the Fed will unleash a response of $767bn (or thereabouts). To Durden’s credit, he provides a partial explanation of why we should probably dismiss this entire train of thought in the very next sentence that he writes.Naturally, that's a simple heuristic based on only what the EURUSD pair is implying. Of course, this is not a scientific way of predicting where Bernanke will go, but that is at least what the market seems to be telling us.
To only say that this mode of prediction is non-scientific is to do all forms of non-scientific economic analysis a huge disservice. It is patently ridiculous to think there is any connection whatsoever between the immediate reaction of a currency pair to a Fed announcement and either the expectations OR the actual value of future asset purchases by the Fed (even ignoring the fact that Bernanke's comments were not much more "uber-dovish" than they have ever been over the past year). It is much more likely that the EUR/USD has simply been moving with the perception of financial risk in the Eurozone this whole time, and perhaps with the expectation of ECB “money printing” since mid-2011. The markets' perception of risk is most certainly tied into the Fed’s QE asset purchases (or the lack of them in 2H 2011) during waves of greed/fear, but all of that is a very far cry from the currency pair acting as a predictive indicator of money printing. Durden almost admits as much above before reverting back to his goal-seeked analysis in pursuit of a predictable conclusion.So at the end of the day, the balance sheets of the world's two biggest central banks will increase by about €500 billion for the ECB and ~$770 for the Fed and $655 billion for the ECB. Incidentally, this analysis assumes all else equal which, with Greece on the verge of default and Portugal potentially in its footsteps, isn't... Thus our question is: gold is not on its way to $2000 yet why again?
It is really unfortunate that such an informative and clever site occasionally feels forced to produce such weak arguments in favor of, what else, gold. The truth is that no one can be certain when Bernanke will decide to pull the trigger on QE3 or how much the Fed’s balance sheet will actually be expanded in nominal terms or relative to the ECB’s balance sheet, and analyses such as the one above provide us with no clearer picture of those possibilities than we had before. It only serves to confuse the issues at hand and provide us with a sense of predictive confidence that we simply can’t have. What we do know is that the Fed’s perpetually low interest rates and the potential for another few hundred billion in QE are very unlikely to make a dent in the ongoing global deleveraging tsunami, and therefore the natural flight to safety away from currencies such as the Euro for U.S. Treasuries and the U.S. Dollar. That is even truer if the ECB floods the European banks with another €500b to €1tn of LTRO funds in February, since very little of that money will actually make it to the distressed consumers, businesses and sovereigns that need it the most. The next day, ZeroHedge asked semi-rhetorically whether Bernanke has become a “gold bug’s best friend”. The logic contained within this brief analysis is similar to the one presented above, as it tries to connect the Fed’s statement and Bernanke’s comments on Wednesday to the subsequent positive returns of gold (and “implicitly silver”) over the 24 hours that came after [emphasis mine].Has Bernanke Become A Gold Bug's Best Friend? Below we present the indexed return of ES (or stocks) and of gold over the past 24 hours since the Bernanke announcement of virtually infinite ZIRP, and the latent threat of QE3 any time the Russell 2000 has a downtick. It is unnecessary to point out just when Bernanke made it all too clear that the Fed has nothing left up its sleeve, expect to directly compete with the ECB over "whose (balance sheet) is bigger," as it is quite obvious. What is not so obvious, is that for all intents and purposes, Bernanke may have unwillingly, become a gold bug's best friend, as gold (and implicitly silver) has benefited substantially more than general risk. Much more. So for the sake of all gold bugs out there, could the Fed perhaps add a few more FOMC statements and press conferences? At this rate gold should be at well over $2000 by the June 20 FOMC meeting.
Granted, the first bolded statement above is quasi-hyperbole, but, then again, it’s not. ZeroHedge and others have been identifying the “latent threat of QE3” in the Fed’s various statements since the early days of 2011, well before QE2 even ended, which may as well be "any time the Russell 2000 has a downtick". The reality is that the Fed has no other choice but to leave open the possibility of further monetary easing in the near future, because otherwise it would be responsible for an uncontrollable downward cascade of markets around the world. And if one is looking hard enough to be vindicated for consistently repeated predictions of money printing to, as Buzz Lightyear would declare, “infinity and beyond”, then one will certainly find latent threats of such printing contained within almost all of the statements released by almost every central banker in the world. What’s much more disturbing is the notion that knee-jerk market reactions to these statements by precious metals (which is fittingly compared to “general risk” in the graph) are somehow indicative of a sustainable price trend. In the next paragraph, we get the caveat that it is not all “smooth sailing” for gold, because rumors of CME margin hikes or actual hikes could surface at any moment and destroy the otherwise developing moonshoot in gold and silver. That’s actually not really a caveat as much as a re-assertion of the flawed premise that market demand for PMs is indestructible outside of centrally-coordinated “takedowns”. What they don’t mention is that debt deleveraging (something quite prevalent these days) is the equivalent of demand destruction, and that’s all a margin hike really is. To top off a series of highly flawed and misleading analyses, Durden follows up the next day with a posting in which he states that Tim Geithner has been added to ZeroHedge’s list of “best Goldbug friends”. Why, you ask? Because there appears to be at least some correlation between increases in the U.S. debt ceiling and increases in the price of gold over the last 10 years. Therefore, the latest increase of $1.2tn in the debt ceiling means Geithner can spend more money for at least a few more months, which means gold can keep going up!
Frankly, I don’t see much of a correlation until at least 2005, besides both the debt ceiling and price of gold steadily increasing over the last decade, which should be no surprise for either of them (excluding the sharp declines in gold price during risk-off phases of 2008 and late last year). To the extent a meaningful correlation does exist, there is really no reason to infer any sort of causation when a whole slew of variables independent of the debt ceiling can explain why gold has generally been on the rise since 2009, including all of the policies that have suppressed the dollar (such as low interest rates and monetization of MBS/Treasuries). Of course there is a connection between the government spending/borrowing and the Fed monetizing debt in unprecedented amounts. The USG already made clear it would be spending/borrowing this money last year (and more), and of course it will end up becoming a huge problem for the U.S. and its currency down the line. How exactly any of that, or this specific instance of Congress raising the debt ceiling, translates into a “green light” for gold to reach $1960/oz. soon is a very different story. It is a story that really has no credible basis in reality and serves only to support a pre-determined objective. Among the plethora of very useful reports/analyses produced by ZeroHedge on a daily basis, these brief postings may not seem like such a big deal. However, they represent a goal-seeked mentality and modus operandi that is frequently on display within the HI/gold crowd and can lead to very misleading conclusions. I can’t be certain, but I’m pretty sure we will see many, many more postings like the ones above over the course of this year, and they will appear almost exclusively when it comes time to discuss gold. None of the above is meant to suggest that the price of gold will plunge into the abyss in the near future, but it is meant to suggest that there are significant risks of gold failing to hold its current valuations around $1700/oz, let alone reach $2000/oz and beyond. These risks are especially formidable when we stop pretending like the Fed, ECB, Bernanke, Geithner or anyone else is in a good financial or sociopolitical position to halt the upcoming waves of debt deflation. We here at The Automatic Earth only ask that you keep these risks in mind as you continue to read and contemplate your future allocations of cash.
Tyne & Wear Archives and Museums Just watch me June 9 1902 Fron album of prisoners brought before the North Shields Police Court in England between 1902 and 1916.
"Time has stopped before us The sky cannot ignore us No one can separate us For we are all that is left The echo bounces off me The shadow lost beside me There's no more need to pretend Cause now I can begin again." Smashing Pumpkins, The Beginning is the End is the Beginning
Ashvin: The latest revolution of the Euro Crisis Cycle has brought us back to talks of restructuring Greek sovereign debt through "Private Sector Involvement" (PSI), which are somehow taking place in a Universe where debt restructuring is not allowed to be confused with "debt default" or "bankruptcy". On Friday January 20, the IIF (representing some of Greece’s creditors) and the Greek government announced that they had finally reached an "agreement" on the basic structure of the restructuring (or the basic restructuring of the structure?). Here’s the live blog update from The Guardian on Friday, which really stood out to me:A framework of the deal -- the basic structure of the bond swap that the Greek finance minister Evangelos Venizelos wants to present at Monday's eurogroup meeting -- has been accepted by both sides, "put in place" and I understand committed to paper. But it would also seem that other aspects of the agreement - be them legal, technical or matters of substance -- remain unresolved and will be discussed at negotiations that resume at 7:30pm local time [6.30 GMT] and look set to continue over the weekend. If Greece's massive €360 bn debt load is to be made manageable much will depend "on the inter-related role of all the interests at stake" insiders say. Even if a decisive agreement is reached, the proposal will have to be put to technocrats -- given the complexity of the deal -- and they could very likely change it again. "The outline won't be the end of the beginning but the beginning of the end," said another source again requesting blanket anonymity because of the delicacy of the talks.
That’s how these anonymous blankets, with their linear mindsets and scripts, really think about the process and justify the charade to everyone else who looks on in anticipation. We have not reached the end of the beginning, but the beginning of the end! Or is it really the beginning of the end of the beginning? Let’s just go ahead and say that the end is the beginning, which is also the end. It’s a circle, a cycle, a never-ending series of revolving points; an optical and psychological illusion of mass proportions.
Of course, not more than two hours after the live update from above, I stumbled across another live update from The Guardian that, in combination with all the reports over the course of just one week, was starting to make the Escher Stairs look like a straight, non-stop, round trip flight from Athens to Brussels and then back to Athens… and then back to Brussels."At the risk of just adding to the confusion over what is or is not happening with the discussions between Greece and the private bondholders, CNBC is reporting no deal has been reached on the terms of a debt swap. Nor is there apparently a press conference planned for tonight. However that does not rule out the idea that a framework has been agreed, and further details will be hammered out over the weekend, as we reported earlier."
So now we should just be glad that we can’t "rule out" the possibility that a framework has been established to "hammer out" further details in upcoming days. What all of this really means is that there are way too many vested interests fighting over the pieces of the same wealth pie which is continuously dwindling in size, and it will take way too long for them to actually sign their names to an agreement that is suitable to all interested parties, as opposed to continuously cycling rumors of "progress" being made. But, alas, even the framework of a deal didn’t last past Saturday, as the parties involved kept making right turns until they came full circle to the point of "stalled talks". Here’s a report from Dow Jones on Saturday January 21, via ZeroHedge:
Greek Bondholder Talks Stalled, Agreement Unlikely By Monday Deadline Talks between Greece and its private sector creditors over a debt writedown plan appeared to stall Saturday as the banks' top negotiator left Athens amid signs of fresh disagreements over how much Greece would pay its bondholders in the future. Officials close to the talks said they may not conclude before a meeting Monday of euro-zone finance ministers where a second bailout which will keep Greece from defaulting is supposed to be discussed. Without a deal on the write-down of the debt held in private hands, the loan can't be released. Institute of International Finance chief Charles Dallara, who has been negotiating with Greek officials on the bond swap plan for the last two days, left Athens Saturday as hurdles remained over the interest rate the new bonds would pay private sector creditors. "Right now there are no talks. There will be consultations with the EU and the IMF to determine where we stand and then we'll see. It (negotiations) has again become complicated with the new demands over the coupon," said a person with direct knowledge of the talks.
And here’s Paul Anastasi and Farry White from The Telegraph with a similar report, except with a slightly more optimistic spin, courtesy of official "spokespersons" from the IIF and Greek government.
Greek debt deal hits setback as talks suspended Charles Dallara, managing director of the Institute of International Finance (IIF), a lobby group representing private creditors who have lent €47bn (£39bn) to the Greek government, has so-far failed to reach agreement on the key interest rate of the new bonds Greece will issue. Athens was anxious to strike a deal ahead of a meeting of eurozone finance ministers on Monday, which could have set in motion the paperwork and approvals necessary to give Greece its next tranche of aid, worth about €130bn. This will prevent a disorderly debt default when €14.5bn of Greek bonds mature in March. However, Greek government officials said on Saturday that the crisis talks had now been postponed for a few days. A spokesman for the IIF said that Mr Dallara had travelled to Paris for a long-standing social arrangement and his departure was "in no way a reflection on the talks". The talks have made "substantial" progress, the spokesman said, noting that Mr Dallara was in phone contact with the Greek prime minister and could return to Athens at any point. International private creditors have already accepted a 50pc "haircut" or loss of their investments in Greek bonds, a move that would cut €100bn from Greece's €360bn debt pile. However, the sticking points appear to be the term to maturity of the new replacement bonds and the rate of interest, or coupon, that they will pay. "We are now expecting a solution in a few days," the Greek government official said. "Nobody expects a failure, as that could raise the spectre of a default. But it would have been convenient to have wrapped things up this weekend, because of the simultaneous presence in Athens of the Troika.
Not much commentary necessary, right? "Back to the drawing board" would imply that they had actually managed to upgrade from the drawing board to some more concrete stages of action, so that doesn’t work. The talks allegedly continue, but the questions of about what, between whom and to what end are all blowing in the wind. These PSI talks, and the Eurozone in general, are still stuck in the depths of an Escher diagram, where every ounce of "progress" is simply a function of some Eurocrat and mainstream media outlet declaring it to exist.
No one wants to accept the fact that, until the entire system is fundamentally transformed (through disorderly collapse or otherwise), this vicious crisis cycle will never end. The Greek PSI negotiations are a perfect example of the hamster wheel that is Europe. In theory, it is both necessary and just for private creditors (mainly banks) to take large haircuts on the net present value of their Greek bond holdings. But as long as the "restructuring" is treated as a means to avoid outright default/bankruptcy, stabilize the structurally imbalanced Eurozone and continue business as usual in the future, it will fail to produce any meaningful results. You simply can’t satisfy all of the vested parties in a fundamentally broken and collapsing system. After a prolonged period of running around in circles, someone is bound to crash into someone else. The revolutions of the Euro Crisis Wheel are bound to spark an actual revolution that forces the system to do that which is unspeakable - change. It is now starting to look like the disorderly Greek default in March (there is no "orderly" version), which was always inevitable but never until now capable of being marked on a calendar, will be the event that sets that particular ball rolling. Let’s face it – even after a credit market "rally", the Greek government is paying close to 400% for a year’s worth of money. The hold outs in the PSI right now are the hedge funds who have loaded up on Greek bonds and CDS insurance, as they figure it is better for them to try and get paid out in full on one or the other than agree to "voluntarily" participate in the swap deal and relinquish their rights as bondholders. Indeed, this literal leverage has given them a degree of negotiating leverage that was certainly under-estimated by the mainstream until now. If they do not take place in the debt swaps, then they can avoid taking a haircut on their bonds, and if they are "coerced" into a restructuring by retro-actively inserted "collective action clauses" (allows a majority of creditors to override the minority), then the CDS most likely get triggered. On top of that, ZeroHedge just produced a lengthy and complex report that describes, among many other things, the various other implications of a retro-active change of local law.
Subordination 101: A Walk Thru For Sovereign Bond Markets In A Post-Greek Default World Before we, like Reuters and like JP Morgan, accept that even the local-law debt can be crammed down, we point readers to a seminal paper by none other than Lee Buchheit, the same one who is currently advising Greece on its bankruptcy negotiations (to call a spade a spade), called How To Restructure Greek Debt from May 2010, in which he says the following: [Buchheit] 'No country in Greece’s position would lightly consider a change of local law as an easy method of dealing with a sovereign debt crisis. The following factors, among others, counsel extreme caution before embarking on such a remedy. • If done once, future investors will fear that it could be done again. The debtor country may therefore be compelled in future borrowings (in which international investor participation is sought) to specify a foreign law as the governing law of its debt instruments. • A dramatic change in local law by one country might allow a worm of doubt to slip into the heads of capital market investors in other similarly-situated countries, driving up borrowing costs around the board. • The official sector supporters of the debtor country will presumably balk at any action of this kind that could unleash the forces of contagion and instability upon other countries whose debt stocks also contain predominantly local law-governed instruments. • The more dramatic or confiscatory the effect of the change of law, the higher the likelihood that it would be subject to a successful legal challenge.
The report also describes how a stripping of the creditor protections offered by Greek bonds issued under U.K. law, which contain CACs and have been accumulated by these holdout hedge funds, will probably have even more severe implications for sovereign bond markets around the world. We should also remember that no one really knows what the knock-on effects of CDS triggers would be throughout the global financial system, since it is entirely unclear how many billions worth of derivatives have been written on Greek debt. It’s really the space between a huge, jagged rock and a very hard place for just about everyone involved, as it has always been. Besides the two direct parties involved (Greece and its creditors), we also have the European Commission, ECB and IMF, who obviously don't want the Greek government to compromise to the point where no meaningful debt reduction is made and they are simply writing checks (endorsed by Western taxpayers) to both the Greek government and its bondholders for nothing in return. English language Katimerini reports a bit on this angle:Dallara suddenly leaves Athens Talks between Athens and the steering committee of private creditors concerning the Private Sector Involvement plan (PSI+) will resume by telephone on Sunday as the committee’s head, Charles Dallara, left Greece unexpectedly on Saturday. According to reports on Skai radio the International Monetary Fund, the European Commission and the European Central Bank are not happy with the provisional agreement between the Greek government and its private creditors, as they believe it does not secure the sustainability of the Greek debt. As a result Dallara, who is also the head of the Institute of International Finance flew to Paris on Saturday to discuss developments with lenders and funds which hold the bulk of the privately-held Greek bonds worth 206 billion euros. Finance Minister Evangelos Venizelos told reporters on Saturday that negotiations would continue on Sunday by phone. Both the IIF and the government have leaked that there is progress in the talks but any agreement would require the approval of Brussels, Berlin and the IMF. Sources suggest that the Greek side proposed to private creditors a 3.5 percent interest rate for bonds maturing by 2014, 3.9 percent for those maturing by 2020 and 4.6 percent for those expiring after 2021. There will be a 10-year grace period and the new bonds will be under British law. Reuters cited an unnamed source saying that "things are complicated, we are getting closer on the numbers but there is still quite some work ahead. An agreement is unlikely before next week, if there is an agreement at all.
For argument’s sake, though, let’s say the Troika, the Greek government and the holdout creditors manage to come back full circle (via telephone conference) to "progress" being made and a deal "nearly within reach" in the next night or two, and then put an actual deal to paper. What will that mean for the Euro Crisis Cycle? Simple – it will continue rolling on in a broader and more devastating fashion. First of all, Greek debt will still not be sustainable in any meaningful sense of that word, as this comprehensive report from Barclays makes clear (via ZeroHedge).Greek Debt Likely Unsustainable Even With Haircuts, Barclays Complete Q&A On PSI 6) Does the PSI in its current form make the Greek debt sustainable? The October Troika debt sustainability report highlights that the current PSI with nearly universal participation gets debt/GDP close to 120% by 2020. First, this number is still on the high side to conclude that Greek debt is sustainable. Second, the underlying macroeconomic assumptions by the October Troika report in terms of GDP growth and primary balance post-2015 are still optimistic (c.3.8% average nominal growth and average 4% primary balance). If these macroeconomic assumptions are reduced to a more realistic 2.5-3%, then the debt sustainability picture would look much worse. As seen in Figure 1, a 50% national haircut with 50% participation does not get Greece close to 120% debt/GDP by 2020, as envisaged even with the relatively optimistic macro economic assumptions of the Troika. Only if 100% participation is achieved would close to a 120% debt/GDP target be reached. For this reason, the Troika does not want to sacrifice universal participation and is determined to do whatever is necessary to maintain it. When worse macroeconomic assumptions are used, the notional haircut needed for a reasonably sustainable debt path is about 80%. Therefore, if Greece and the Troika go ahead with October summit broad parameters for the PSI, even with 100% participation Greek debt is not likely to be sustainable in the absence of substantial fiscal and structural adjustment by Greece in the years ahead.
That's right - even if 100% of private creditors participated in the proposed debt swap arrangement for a 80% haircut to notional value (not going to happen!), Greece's debt would still remain at entirely unsustainable levels for many years to come (and that's assuming a 100-120% debt/GDP ratio is the threshold for sustainability). Secondly, the Greek situation is obviously only one piece of a much larger puzzle in Europe. Peter Tchir remarks on those other debt-swamped Eurozone countries who sure would love to have some "voluntary debt swaps" of their own.Greek PSI Here We Come? Be Careful What You Wish For "So it looks like we should get an announcement sometime today about the proposed Greek PSI deal. Yes, proposed, not finalized. Asides from the obvious fact that there will be limited or no documentation for the deal, we still have no clue who has agreed to what. As far as I can tell, no one has given the IIF negotiators any binding power. Obviously some of the institutions that the IIF negotiators are associated would have trouble not approving the "deal", but how many bonds do they really represent? I think this will be a relatively small portion of bondholders and then the real game begins. The carrot and stick that the EU and ECB can use with other holders and the desire to maximize profits (or minimize losses) on the other side. So far, this news seems to be acting inversely to the "downgrades" price action, as early front-running is meeting sell the news. If the terms of the deal being leaked are true, it will be extremely interesting to see what other countries do. Not only will Greece receive a 50% notional reduction (except from the ECB and other "public" holders), but they will get very long dated money at very low rates. Who wouldn't want that? Why should Spain be going through semi-legitimate auctions when Greece can get longer dated money at lower rates? Why should Portugal or Hungary bother with painful steps to reduce debt when the alternative is spend more, reduce debt via restructuring, and get lower rates on that reduced debt?"
There is absolutely no way that European private banks can afford to take another 50-100% haircut on the bonds of Portugal or Ireland on top of Greece, let alone Spain or Italy. Any attempts towards such an outcome would be even less "voluntary" than the Greek swaps, and that’s really saying something. And who would even want to buy the bonds of these countries after the most coercive restructuring in history just took place? This time it was a few hedge funds that have brought us to the brink of potentially catastrophic debt deflation, next time (if there is one) it will be a much broader force of resistance.
The economic, financial and political divides within Europe will simply deepen to the point where the internal hemorrhaging overwhelms any and all top-down "solutions". So IF this Greek PSI deal is finalized soon, the IMF bailout money is disbursed and Greece gets through the next few months, the focus will simply shift back to those equally troubled and much bigger debt issuers across Europe (and perhaps the world). We’ll be right back at the end of the beginning or the beginning of the end, depending on which way the crisis propaganda decides to spin on any given day.