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Post by Clinton SPX on Sept 17, 2011 7:38:34 GMT -5
Europe Rules Out Stimulus, Shuns Geithner’s Plea Q By James G. Neuger and Rebecca Christie - Sep 16, 2011 6:00 PM ET
European finance ministers ruled out efforts to spur the faltering economy and showed no signs of taking up a proposal by U.S. Treasury Secretary Timothy Geithner to increase the firepower of the debt crisis rescue fund. Inviting Geithner to a euro meeting for the first time, the European finance chiefs said the 18-month debt crisis leaves no room for tax cuts or extra spending to spur an economy on the brink of stagnation. “We have slightly different views from time to time with our U.S. colleagues when it comes to fiscal-stimulus packages,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing the meeting yesterday in Wroclaw, Poland. “We don’t see any room for maneuver in the euro area which could allow us to launch new fiscal stimulus packages. That will not be possible.” Europe’s economy will barely grow in the second half of 2011, a casualty of the debt buildup that 256 billion euros ($353 billion) in aid for Greece, Ireland and Portugal has failed to extinguish. Geithner made little headway with a call for Europe to boost the capacity of the 440 billion-euro rescue fund, known as the European Financial Stability Facility, by enabling it to tap the European Central Bank. ‘Non-Member’ Juncker said there was no discussion of expanding the fund today -- at least not while the American guest was in the room. “We are not discussing the increase or the expansion of the EFSF with a non-member of the euro area,” he said. German Finance Minister Wolfgang Schaeuble spoke of a “very intensive but friendly discussion” and Austrian Finance Minister Maria Fekter found it “peculiar” to be lectured by the U.S., a country with higher aggregate debt than the euro area. Instead, the ministers recommitted to a July 21 decision to empower the fund to buy bonds in the primary and secondary market, offer precautionary credit lines and create a bank- recapitalization facility. The target for completing national approvals of the new powers slipped to mid-October. Geithner preached the lessons of the emergency banking support provided by the Treasury and Federal Reserve in reaction to the collapse of Lehman Brothers Holdings Inc., mixing it with criticism of Europe’s crisis-management coordination. ‘Permanent Message’ Europe projects an image of “ongoing conflict” between national governments and the central bank, hampering efforts to put the economy on a sounder footing, Geithner said at a banking conference in between euro meetings. “Your financial challenges in Europe are eminently in your capacity to manage financially, you just have to choose to do it,” he said. Echoes of that appeal came from ECB President Jean-Claude Trichet, six weeks from the end of an eight-year term as the overseer of euro interest rates. “Our permanent message is of course to be ahead of the curve,” Trichet told reporters. “All that I heard goes in this direction. But the problems are not words, the problems are deeds.” The ECB was in the forefront again this week, joining other major central banks in offering dollar loans to ease a liquidity crunch that had confronted European banks with the highest costs for obtaining the U.S. currency in almost three years. Finance chiefs stuck by the view that commercial banks have enough capital to ride out the turbulence that has driven the bonds of Greece, the epicenter of the crisis, to less than half their nominal value. ‘Substantial Improvement’ Trichet hailed an accord between governments and the European Parliament that will tighten the euro area’s economic management and make it easier to impose sanctions on countries that overstep the budget-deficit limit of 3 percent of gross domestic product. The new rules, to take effect by Jan. 1, mark a “substantial improvement,” Trichet said. The debt overhang is taking its toll on the wider economy, the European Commission says. It cut its growth forecast this week to 0.2 percent for the third quarter and 0.1 percent in the fourth, down from projections of 0.4 percent for both periods. “Recovery is stalling in the second half of the year, but we do not forecast a return to recession,” European Union Economic and Monetary Commissioner Olli Rehn said. “Uncertainty and stress in financial markets is now having negative ramifications in the real economy and is hampering our growth prospects.” Greek Aid Greece is now looking to the ministers’ next meeting, on Oct. 3, for a decision on the release of an 8 billion-euro aid installment. The loan would be disbursed by mid-October, enabling the government to pay its bills through the end of the year. The fate of future Greek loans remains tied up by a demand by Finland, one of Europe’s six AAA rated countries, that it receive collateral, potentially in the form of real estate or shares in nationalized Greek banks. While a final agreement eluded them, the ministers agreed on the principle that collateral must carry a cost, with the goal of limiting its use to Finland. “There is unity that collateral, first of all, must be open to all and, second, must cost something,” Austria’s Fekter said. On personnel matters, the officials set a Sept. 27 deadline for nominations to replace Germany’s Juergen Stark on the ECB’s Executive Board. Stark, an opponent of the bank’s bond-purchase program, said last week he will quit before his term ends in May 2014.
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Post by rex on Sept 17, 2011 8:29:35 GMT -5
I wonder if the markets were counting on a stimulus!
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Post by herceg1967 on Sept 17, 2011 8:31:33 GMT -5
I cannot see our markets running in the face of everything in Europe and more notably what is going on right here.................
Just a matter of time before we resume downwards again...............
JMO and BOL.............
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Post by tarzan on Sept 17, 2011 10:13:43 GMT -5
The downward spiral has not been addressed adequately, by those with the ability to do so. Perhaps it is their plan to hinder and impair enough so that a financial type of "imperialism" occurs. They've already raped and pillaged Greece. Well, maybe they aren't done pillaging yet. Who's next? Germany needs somebody to sell submarines to.......don't they?
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Post by brosin on Sept 17, 2011 10:14:58 GMT -5
I cannot see our markets running in the face of everything in Europe and more notably what is going on right here................. Just a matter of time before we resume downwards again............... JMO and BOL............. Herceg - I see a lot of these types of posts from you lately. All of these same problems in Europe were going on while the market was running from SPX 1040 to 1370 during a 9-10 month span. I don't think you should be so dead set on thinking things are easily headed down. I think the amount of bearish sentiment alone should make you think maybe the worst was seen. It is typically skepticism that acts as a sign that the market has a lot of room to move up, just as it is complacency that acts as a sign that the market has a lot of room to move down as it did in July/August of this year. I think right now there is way more skepticism than complacency.
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Post by demanuel2001 on Sept 17, 2011 13:32:55 GMT -5
I agree with Brosin. How many times can you be spooked by the same old new? Incidentally, I regard it as extremely positive news that Europe is ignoring Geithner - what exactly is his claim to fame?
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Post by Clinton SPX on Sept 17, 2011 15:08:04 GMT -5
(Reuters) - EU finance ministers broke no new ground in dealing with the euro zone debt crisis in discussions over the weekend, instead absorbing some ideas and rejecting others and taking stock of progress on agreed steps.
Ministers and central bank governors from the 17 countries using the euro and the broader 27-nation European Union met on Friday and Saturday in the Polish city of Wroclaw to discuss Europe's slowing economic growth and progress in beefing up euro zone defenses against the sovereign debt crisis.
In an unprecedented visit to the informal talks of top EU financial officials, U.S. Treasury Secretary Timothy Geithner made an appearance in Wroclaw on Friday to urge Germany to provide more fiscal stimulus to the slackening euro zone.
But Geithner's call for action by those who can afford it was rejected because the euro zone believes that market trust in the sustainability of its public finances, and therefore consolidation, is more important than spending on growth.
"Fiscal consolidation remains a top priority for the euro area," said Luxembourg's Jean-Claude Juncker, chairman of euro zone finance ministers.
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Post by Clinton SPX on Sept 17, 2011 15:09:59 GMT -5
WASHINGTON (MarketWatch) — European leaders made little headway Saturday on resolving a banking crisis that threatens to weaken their economies and spread damage overseas to countries such as the United States.
Finance ministers from European Union nations gathered in Poland for two days of talks and even invited Treasury Secretary Timothy Geithner to their meeting to explain how the U.S. handled a similar crisis in 2008-09.
Yet EU ministers did not coalesce around any rescue plan for Greece or troubled European banks. Some also brushed off advice from Geithner, who’s urged them to stimulate their economies and act quickly to shore up their banking system.
Europe’s largest banks own billons of dollars worth of Greek bonds and they could suffer massive losses if Greece is unable make payments. The shaky finances of European banks, especially the biggest institutions in France, has unnerved global investors and made it harder for those banks to raise money.
The fear of a Greek default and damage to European banks has weighed heavily on U.S. markets over the past few weeks. Economists warn that a crisis could damage the world economy and perhaps even send the U.S. back into recession.
Europe is one of the largest trading partners of the U.S., accounting for almost 22% of the nation’s exports. As a result, the Obama administration has been pressing the EU to take quicker action to contain the crisis.
Wealthier EU countries such as Germany have been balking at a larger bailout of Greece using public money. All EU leaders have agreed on so far is that their banks need to be strengthened by raising more capital.
Click to Play Debt crisis tops eurozone agenda U.S. Treasury Secretary Timothy Geithner met with Eurozone finance ministers to discuss ways to prevent Europe's debt crisis from further impacting the global economy.
“From our perspective, we see a clear need for bank recapitalization,” Swedish Finance minister Anders Borg said. “The EU banking system needs better backstops and that’s basically a matter of capital.”
The big question is where the money will come from, especially since private investors appear unwilling to risk more cash. A shortage of dollars prompted the Federal Reserve this week to engage in large currency swaps with European central banks that effectively injected more liquidity into the EU’s financial system.
Most analysts think European governments will have no choice but to use public money. Jay Bryson, global economist at Wells Fargo, said Germany “can pay now or they can pay later.”
The cost of delay, however, is likely to be substantially higher, he said.
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Post by Clinton SPX on Sept 17, 2011 15:23:21 GMT -5
China Just Gave A $1 Billion Loan To A Troubled European Country Gus Lubin | Sep. 17, 2011, 2:05 PM | 1,073 | 2 A A A inShare 8 Image: Flickr See Also: Wen Jiabao Warns Europe: "Debt-Laden Economies Must Get Their Houses In Order" We Researched How Chinese Keyboards Work, And It's Totally Nuts Can China Really Rescue Italy? Belarus. Rather than bailing out Italy as markets hoped last week, China gave a $1 billion loan to Belarus, along with grants and building contracts, according to the AFP: A statement said Wu Bangguo also announced agreements to build a communications satellite, a paper factory and a hotel in Minsk in a meeting with leading members of the Belarus parliament. "The Chinese government has taken the decision to accord Belarus a preferential loan of one billion dollars for the realisation of joint projects, as well as a grant of 70 million yuans," the statement quoted Wu as saying. He also said China gave Alexander Lukashenko's iron-fisted regime full backing for its stance on domestic and international questions and its resistance to foreign meddling. Giving money to this hyperinflation-suffering Eastern European dictatorship will have little impact on markets. The IMF has refused to offer money to Belarus until the country agrees to reforms. Instead China buys favors and contracts in a poor country, as they have done in developing nations around the world. Read more: www.businessinsider.com/china-just-gave-a-1-billion-loan-to-a-troubled-european-country-2011-9?utm_source=dlvr.it&utm_medium=social&utm_campaign=clusterstock#ixzz1YF99caCi
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Post by rex on Sept 17, 2011 16:10:32 GMT -5
I thought there would have been more to than that! That's a joke!
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Post by Clinton SPX on Sept 17, 2011 16:24:50 GMT -5
Is September 20 Greek Default Day? Submitted by Tyler Durden on 09/17/2011 14:52 -0400
CDS default Greece headlines International Monetary Fund None Poland Sovereigns
From Peter Tchir of TF Market Advisors
Is September 20 Greek Default Day?
If Greece is going to default, September 20th seems to be as good a day as any. Actually, it is far better than most to be GD-Day.
Two big bonds, the 4.5% of 2037 and the 4.6% of 2040 both have coupon payments due that day, totalling 769 Million Euro. So if the IMF wanted to avoid letting another billion euro go down the drain, September 20th would be a good day to do it. The IMF seems to have delayed approving another tranche for now, so Greece must already have the money for this payment?
The Fed Scheduled their meeting for 2 days. It now starts on September 20th. Maybe a co-incidence, but what better way to be prepared for new emergency policies?
CDS "rolls" on the 20th. On the 21st, all Sept 2011 CDS will have expired. My guess is that banks own more protection than they sold to the September 20th date, so defaulting while those contracts are still valid would be a net benefit to the banking system. As a whole, triggering CDS will likely benefit banks as I can find banks that say they own protection against positions, but find more hedge funds are uninvolved or have sold protection to fund shorts in other sovereigns.
We just finished the big finance minister meeting. They can all return home, brief their staff and be prepared for Tuesday. Prior to D-Day there were lots of last minute preparations to make sure everyone was on the same page and as prepared as possible. Why not before GD-Day?
Papandreou cancelled a trip to the U.S. And Venizelos mentioned that Papandreou had to be in Athens for "Initiatives". If you ever wanted some hand holding from your leader, it would be at a time of default. He would have to be in country to calm things and mention all the deals he put in place last week on the conference call.
None of the headlines from Poland or comments from the IMF seem particularly positive. I can't even find the customary all is good, we are working together, this was a time of great progress, boiler plate statement having been released. Maybe they are waiting for Monday to let the world in on all the joyous progress. I suspect they are more likely to wait on bad news than good news. They have often tried to control bad news over the weekend. Maybe they have decided it would be better to deal with it real time.
There is still a chance we see some bold new initiative or plan, but as I wrote last week, every step and virtually every comment made, for the past 8 days, is consistent with preparing for a default.
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Post by im2buzzi on Sept 17, 2011 16:35:49 GMT -5
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Post by novice08 on Sept 17, 2011 16:37:18 GMT -5
Default it is, euro down, dollar up, gold up imo.
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Post by rex on Sept 17, 2011 17:18:05 GMT -5
Wow, I can't beleive after all this time to figure out a solution, it's really going to happen. The big question is the collateral damage. Will it be as bad as we fear? Or, do they have a solution that is so overwhelming that is completely counteracts the Greece default blow?
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Post by Rothschild on Sept 17, 2011 17:23:07 GMT -5
Greece should default; debts that cant be paid, wont be paid. Free the people from debt slavery like Iceland!
Throw the IMF ( Intl Mafia Fund ) behind bars. Screw the i lluminati!
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Post by jack on Sept 17, 2011 18:25:29 GMT -5
Default it is, euro down, dollar up, gold up imo. ....but you forgot to add "Stocks kerPLUNCK(TM)"
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Post by jack on Sept 17, 2011 18:51:01 GMT -5
I suggest we start a new on-going thread specifically devoted to Greece. We can call it: Baklava Alert!
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Post by Clinton SPX on Sept 17, 2011 19:22:44 GMT -5
Looks like no more official trips for G-Pap anywhere very soon:
ECB'S WEIDMANN-IT IS WRONG TO ABANDON ALL PRINCIPLES OF MONETARY POLICY BY CITING A GENERAL EMERGENCY-SPIEGEL GERMAN CSU HEAD - IF GREECE CAN'T OR WON'T KEEP TRACK WITH RESCUE PLAN THAN AN EXIT FROM THE EURO ZONE IS CONCEIVABLE-SPIEGEL More from Reuters:
European Central Bank Governing Council member Jens Weidmann told Germany's Spiegel magazine in an interview he considered it wrong to "throw out all established principles of monetary policy by citing a general emergency." In a preview of an interview to be published in the new edition of Spiegel, Weidmann, head of the Bundesbank, said: "Once people start to use monetary policy there will always appear to be reasons suggesting it should continue to be used." Abd:
The leader of Germany's Christian Social Union (CSU), part of Chancellor Angela Merkel's centre-right coalition, reiterated in an interview with Germany's Spiegel Magazine that Greece might have to leave the euro zone if it failed to meet conditions set by the European Union, European Central Bank and International Monetary Fund. "If the Greek government and parliament can't or won't keep to the path then we shouldn't wait for the financial markets to force us into accepting reality. Then an exit of Greece from the euro zone must be conceivable. And in other official news, Germany officially slammed the door on Geithner's face:
Germany’s top two finance officials rejected using the European Central Bank to boost the euro-area rescue fund’s firepower, rebuffing a suggestion by U.S. Treasury Secretary Timothy Geithner. Inviting Geithner to a euro meeting for the first time, European finance chiefs who wrapped up two days of talks in Wroclaw, Poland, today also said the 18-month debt crisis leaves no room for tax cuts or extra spending to spur an economy on the brink of stagnation. The German stance risks leaving the euro area without sufficient means to prevent the crisis from engulfing Spain and Italy. Geithner floated a variation of a 2008 policy he developed while at the New York Federal Reserve that would expand the reach of the 440 billion-euro ($607 billion) European Financial Stability Facility using leverage in a partnership with the ECB, said Irish Finance Minister Michael Noonan. “The EFSF’s sole purpose is the financing of states and that’s in order as long as it’s done via the capital market,” Bundesbank President Jens Weidmann told reporters today. “If it’s done via the central bank it constitutes monetary state financing,” which is forbidden under European Union rules. "Luckily" for the US middle class, adhering the rules never stopped Timmy-G before...
But the biggest slap down is not that of Pinocchio, but of Bernanke himself:
Luxembourg Prime Minister Jean-Claude Juncker, who chairs meetings of euro region finance ministers, said yesterday: “We’re not discussing the increase or the expansion of the EFSF with a non-member of the euro area.” Instead, the ministers recommitted to a July 21 decision to empower the fund to buy bonds in the secondary market, offer precautionary credit lines and create a bank-recapitalization facility. “We don’t think that real economic and social problems can be solved by means of monetary policy,” said German Finance Minister Wolfgang Schaeuble, speaking alongside Weidmann after the meeting of EU finance ministers and central bank governors. “That has never been the European model and it won’t be.” Funny: does Bernanke realize that Europe just mutinied? What happens if the head USD printer suddenly decides to shut down those expanded swap lines after all.
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Post by Clinton SPX on Sept 17, 2011 23:38:16 GMT -5
Eurozone Finance Ministers Finally Admit That Banks Need To Be Recapitalized Simone Foxman | Sep. 17, 2011, 10:12 AM | 2,009 | 16 A A A inShare 7 Image: DanielleCM via flickr See Also: EUROTARP? Here's What You Need To Know About The Hot New Idea To Save The Euro How A Leveraged EFSF Might Work In Europe What EU Leaders Just Said At Their Press Conference According to Reuters, EU finance ministers have prepared a statement calling for European banks to raise their capital. The move would signal acknowledgment of the ineffectiveness of bank stress tests conducted by the European Central Bank in July. This couples mounting speculation that banks may indeed get hammered by a sovereign default -- a contingency not raised by the bank tests. The statement suggests that European banks may indeed need more capital and be facing a credit crunch. The document states: Despite the increased resilience of European banks and the limited remaining refinancing needs for the rest of 2011, in view of a compelling market pressure for an increase in banking capital benchmarks and with the aim of dispelling any doubts on the intrinsic stability of most banks, a further reinforcement of bank resources is advisable at this juncture... This is important for banks that have failed the stress test, but also for those that have passed the test but with capital level close to the relevant threshold, and particularly with sizeable exposures to sovereigns under stress. It is once again unclear where capital to bolster such banks will come from. Banks that failed the tests were ordered to increase their ratio of tier 1 assets to liabilities to 5% by the end of the year, or accept money from their domestic sovereign government. However, those tests never accounted for the fact that a heavily indebted sovereign government might not be able to finance such recapitalization. This statement falls short of suggesting that public money should be used to recapitalize European banks. On one hand, the admission of banks' vulnerability could shake markets by indicating that the banking situation is more grim than previously thought. On the other hand, this resolution could mark a turning point in eurozone policy. Instead of buying bonds, the ECB and European Financial Stability Facility could be focusing on strengthening banks to bolster investor confidence. Investors could be hopeful that such a policy would precede the implementation of a TARP-like program to recapitalize banks with public funds. DON'T MISS: Here are the European banks that are really desperate for the eurozone bailout to work Read more: www.businessinsider.com/eurozone-fin-mins-finally-agree-to-recapitalize-banks-2011-9?utm_source=dlvr.it&utm_medium=social&utm_campaign=clusterstock#ixzz1YH9o6EHj
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Post by Clinton SPX on Sept 18, 2011 0:40:03 GMT -5
Bailout Rebellion in Germany Heats Up Submitted by testosteronepit on 09/16/2011 20:31 -0400
Bond default European Central Bank Eurozone Germany Greece Poland Timothy Geithner
For the first time ever, a clear majority (60%) of Germans no longer sees any benefits to being part of the Eurozone, given all the risks, according to a poll published September 16 (FAZ, article in German). In the age group 45 to 54, it jumps to 67%. And 66% reject aiding Greece and other heavily indebted countries. Ominously for Chancellor Angela Merkel, 82% believe that her government's crisis management is bad, and 83% complain that they're kept in the dark about the politics of the euro crisis.
"There cannot be any prohibition to think" just so that the euro can be stabilized, wrote Philipp Rösler, Minister of Economics and Technology, in a commentary published on September 9 (Welt, article in German). "And the orderly default of Greece is part of that," he added. Instantly, all hell broke loose, and Denkverbot (prohibition to think) became a rallying cry against the onslaught of criticism that his remarks engendered.
Even Timothy Geithner, who attended the meeting of European finance ministers in Poland, fired off a broadside in Rösler's direction. In the same breath, he proposed the expansion—through leverage, of all things—of the European bailout mechanism, the EFSF. According to Austrian Finance Minister, Maria Fekter, who witnessed the scene, he warned of "catastrophic" economic risks due to the disputes among the countries of the Eurozone and due to the conflicts between these countries and the ECB. Then he demanded in dramatic terms, she said, that "we grab money with our hands to stabilize the banks and expand the EFSF unconditionally."
The smack-down was immediate. German Finance Minister, Wolfgang Schäuble, took Geithner to task and explained to him in no uncertain terms, according to Fekter, that it was not possible to burden the taxpayers to that extent, particularly not if only the taxpayers of Triple-A countries were to be burdened. A bailout "with tax money alone in the quantity that the USA imagines will not be feasible," Schäuble said. (Wiener Zeitung, article in German).
Vocal support for Rösler came today from a group of 16 prominent German economists. If the government in its efforts to stabilize the euro didn't consider the insolvency of a member country, they warned, Germany would become subject to endless extortion (FAZ, article in German). And to impose a Denkverbot concerning it would be a step back into "top-down state thinking." They further lamented that these policies would turn the Eurozone into a transfer union. If the government wanted to establish a transfer union, it should discuss that with the German voters, they demanded, because it would be a fundamental change in the E.U. constitution and should be legitimized by vote. Otherwise, Germany would be "threatened by a populist movement to exit the E.U."
Meanwhile, on his visit to Rome, Rösler had to face down Italian Finance Minister, Giulio Tremonti, who'd "vehemently" demanded the creation of Eurobonds, sources of the German delegation said (Zeit, article in German). President of the European Commission, José Manuel Barroso, supported Tremonti's demands. But Rösler, like Merkel and others, rejected the idea. Transferring liabilities to other countries would remove pressure from debtor nations to reform, he said, differences in yields being a market-driven incentive to get the budget in order. Eurobonds are also legally impossible, he added, based on a recent decision by the German Federal Constitutional Court.
Eurozone must be honest: Big haircuts for bond holders, debt limits for all, says Die Zeit (article in German). The drama of saving European banks that hold Greek debt, and the debt of other tottering Eurozone nations, has been going on for a year and a half. Each effort to keep Greece on track follows the familiar script. Politicians promise spending cuts. Greeks demonstrate. E.U. inspectors check things out and leave angry. Germans declare that Greece will not get any relief until it fixes its problems. Then Greece notices that it needs yet more money and threatens to default. Germany nods. And the next installment gets paid.
By now, all hope for a happy ending has dissipated. Greece is suffering from a multitude of problems that defy quick fixes, among them a huge pile of debt, an inept and corrupt fiscal system where taxes are simply not collected, dysfunctional institutions, and a government-dominated economy. Even unlimited amounts of money can only defer the end game.
But there are already victims. The most recent one: The concept of an independent, apolitical central bank whose primary purpose is guarding the value of the currency, rather than monetizing the debt of countries that have spent beyond their means.
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Post by timber on Sept 18, 2011 5:58:14 GMT -5
clinton what is ITMSs doing now
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Post by Clinton SPX on Sept 18, 2011 9:26:13 GMT -5
Im pretty sure they are mostly cash and just day trading till the big collapse. He doesnt like what copper is saying at all.
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Post by Clinton SPX on Sept 18, 2011 9:27:27 GMT -5
German banks need 127 billion euros of more capital: report
FRANKFURT | Sun Sep 18, 2011 8:16am EDT (Reuters) - Germany's 10 biggest banks need 127 billion euros ($175 billion) of additional capital, German newspaper Frankfurt Allgemeine Sonntagszeitung reported, citing a study by economic research institute DIW.
The paper on Sunday cited Dorothea Schaefer, research director for financial markets at DIW, as saying the ratio of banks' equity capital to balance sheet total needs to rise to at least 5 percent.
A source said this month that the International Monetary Fund has estimated European banks overall could face a capital shortfall of 200 billion euros.
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Post by Clinton SPX on Sept 18, 2011 9:30:14 GMT -5
Swiss drug giant Roche Holding AG has stopped delivering its drugs for cancer and other diseases to some state-funded hospitals in Greece that haven't paid their bills, and may take similar steps elsewhere, a stark example of how the European debt crisis that has jolted global financial markets is having a direct effect on consumers.
In Greece, Roche is boosting deliveries to pharmacies, which have paid their bills more reliably, Chief Executive Severin Schwan said in an interview on Friday. Patients at some hospitals now must take their prescriptions to a local pharmacy, and, in the case of intravenous or injected cancer drugs, bring them back to the hospital to be administered, he said.
Mr. Schwan said patients haven't been deprived of their medication as a result of the new measures, which he said Roche may need to adopt in Spain, as well. Some state-funded hospitals in Portugal and Italy have also fallen far behind on payments, he said.
There are hospitals "who haven't paid their bills in three or four years," Mr. Schwan said. "There comes a point where the business is not sustainable anymore."
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Post by Clinton SPX on Sept 18, 2011 9:58:50 GMT -5
(Reuters) - Greek Prime Minister George Papandreou chairs a cabinet meeting on Sunday to decide on more austerity measures to secure continued funding under an international bailout.
EU and IMF inspectors are holding a conference call with Finance Minister Evangelos Venizelos on Monday to hear what measures Greece will take to plug this year's shortfall in the budget before they release an 8 billion euro ($11 billion) loan tranche it needs by October before it runs out of money.
Papandreou canceled a planned visit to the United States on Saturday to deal with the deepening crisis at home as euro zone partners made clear further funding for the debt-ridden country would hinge on adhering to agreed fiscal targets.
"The meeting is set to examine measures from public sector layoffs to more pension cuts," said a government official on condition of anonymity.
Last week, the government blamed the shortfall on a deeper-than-expected recession and decided to put a new tax on real estate in the hope of collecting about 2 billion euros annually.
But international inspectors, known as the troika, expressed doubts this one-off tax measure would work and demanded more details on how the government hoped to catch up this year and the next.
"The troika thinks the recently announced property levy will not suffice to plug the budget hole and is pressing for measures on the spending side -- cuts in public sector wages and employment," said a second government official who asked not to be named.
The conservative New Democracy opposition has criticized the government for overtaxing the economy and driving it into a tail spin.
Its leader, Antonis Samaras, called for snap elections on Saturday saying the policy mix was wrong and was not yielding any results despite peoples' sacrifices.
"A renegotiation with our lenders to restart the economy is a condition to get out of this crisis," Samaras told a news conference on Sunday.
International lenders are also concerned with the lack of political consensus in Greece on the measures needed to emerge from the crisis.
The conservatives have been buoyed by growing public discontent after two years of austerity measures and are proposing tax cuts and growth boosting measures instead.
Papandreou's socialists have a majority in parliament but political analysts say internal dissent and public unrest, such as strikes and violent protests, may force snap elections.
Lenders have long warned against one-off measures and more taxes as a way out of the crisis shaking the euro.
They have asked for urgent reforms and privatizations to make the economy more competitive and a reduction in the bloated public sector.
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Post by Clinton SPX on Sept 18, 2011 10:13:37 GMT -5
Twist and Shout? By John Mauldin September 17, 2011
Bailing Out Europe’s Banks Yesterday the Fed announced that along with the central banks of Great Britain, Japan, and Switzerland it would provide dollars to European banks that have lost their ability to access dollar capital markets (basically each other and US-based money market funds that are slowly letting their holdings of European bank commercial paper decrease as it comes due. And if they are “rolling it over,” they are buying very short-term paper, according to officials at the major French bank BNP Paribas.
Are US taxpayers on the hook? We will deal with that in a minute. The more interesting question is, why do it at all and why now? Was there a crisis that we missed? Why the sudden urgency?
One of the little ironies of this whole Great Recession is that the central banks of the world rolled out this policy on the 3rd anniversary of the Lehman collapse. The Fed acted AFTER that crisis to provide liquidity. And we know the recession and bear market that followed.
The only reason for this move must certainly be that they are acting to prevent what they fear will be another Lehman-type crisis. Otherwise it makes no sense. They can give us any pretty words they want, but this was not something calculated to make the US voter happy. To do this, you have to be convinced that “something evil this way comes.” And to recognize the costs of not doing anything, and try to head them off.
My guess (and it is that, on a Friday night) is that the European Central Bank made a presentation to the other central bankers of the realities on the ground in Europe, and the picture was plug ugly. It should be no surprise to readers of this letter that European banks have bought many times their capital base in sovereign debt. The Endgame is getting closer (more on that in a minute).
Let’s look at just one country. French banks are leveraged 4 times total French GDP. Not their private capital, mind you, but the entire county’s economic output! French banks have a total of almost $70 billion in exposure to Greek public and private debt, on which they will have to take at least a 50% haircut, and bond rating group Sean Egan thinks it will ultimately be closer to 90%. That is just Greek debt, mind you. Essentially, French banks are perilously close to being too big for France to save with only modest haircuts on their sovereign debt. If they were forced to take what will soon be mark-to-market numbers, they would be insolvent.
Forget it being simply French or Greek or Spanish banks. Think German banks are much different? Pick a country in continental Europe. They (almost) all drank the Kool-Aid of Basel III, which said there was no risk to sovereign debt, so you could lever up to increase profits. And they did, up to 30-40 times. (Greedy bankers know no borders – it comes with the breed.) For all our bank regulatory problems in the US (and they are legion), I smile when I hear European calls for US banks to submit to Basel III. Bring that up again in about two years, when many of your European banks have been nationalized under Basel III, at huge cost to the local taxpayers.
Next, let’s look at the position of the ECB. They are clearly seeing a credit disaster at nearly every major European bank. As I keep writing, this could and probably will be much worse for Europe than 2008. So you stem the tide now. But for how long and how much does it cost? A few hundred billion for Greek debt? Then Portugal and Ireland come to mind. If bond markets are free, Italy and Spain are clearly next, given the recent action in Italian and Spanish bonds before the ECB stepped in.
Could it cost a half a trillion euros? Probably, if they have to go “all in.” And that is before the ECB starts to buy Italian and Spanish debt (Belgium, anyone?), which no one in Europe is even thinking that the various bailout mechanisms (EFSF, etc.) could handle, which leaves only the ECB to step up to the plate. The ultimate number is quite large.
WWGD? What Will Germany Do? That has to be the question on the mind of the new ECB president, Mario Draghi, who takes over in November, just in time for the next crisis. I believe German Chancellor Angela Merkel at her core is a Europhile and wants to do whatever she can to hold the euro experiment together. But for all that, she is a politician, who knows that losing elections is not a good thing. And the drum beat of the German Bundesbank and German voters grows ever louder in opposition to the ECB printing euros. Can she explain the need for this to her public?
As my friend George Friedman wrote today, Europe is complex. Speaking about Geithner going to the Eurozone finance meeting this weekend in Poland, he says:
“Geithner’s presence is particularly useful for two reasons. First, despite the vitriol that is a hallmark of American domestic politics, American monetary policy is remarkably collegial. The transitions between Treasury secretaries are strikingly smooth. Geithner himself worked for the Federal Reserve before coming into his current job, and Geithner’s partners in managing the U.S. system – the chairmen of the Federal Reserve and the Federal Deposit Insurance Corporation – are typically apolitical. Geithner holds the United States’ institutional knowledge on economic crisis management.
“Second, what Geithner doesn’t know, he can easily and quickly ascertain by calling one of the chairmen mentioned above. This is a somewhat alien concept in Europe, which counts 27 separate banking authorities, 11 different monetary authorities, and at last reckoning some 30 entities with the power to carry out bailout procedures.
“Getting everyone on the same page requires weeks of planning, a conference room of not insignificant size and a small army of assistants and translators, followed by weeks of follow-on negotiations in which parliaments and perhaps even the general populace participate in ratification procedures. The last update to the European Union’s bailout program was agreed to July 22, but might not be ready for use before December. In contrast, the key policymakers in the American system can in essence gather at a two-top table for an emergency meeting and have a new policy in place in an hour.
“Geithner will undoubtedly point out that the European system is not capable of surviving the intensifying crisis without dramatic changes. Those changes include, but are hardly limited to, federalizing banking regulation, radically altering the European Central Bank’s charter to grant it the tools necessary to mitigate the crisis, forming an iron fence around the endangered European economies so that they don’t crash everyone else, and above all recapitalizing the European banking sector to the tune of hundreds of billions (if not trillions) of euros – so that when trouble further intensifies, the entire European system doesn’t collapse.”
That is the standard Europhile leader’s line. I talked this week with a leader of that faction, and that could be his speech. But again, that is not what Germany signed on for. They thought they were getting open markets and an ECB that would behave like the Deutsche Bundesbank. And it did for ten years. Now, in the midst of crisis, the rest of Europe is talking about needing a less restrictive monetary policy. That means potential inflation, which still strikes fear in the hearts of proper German burghers.
If George is right, Geithner will be speaking to (mostly) a receptive audience. But he is a central banker talking, not a politician. And his message will not play well in Bavaria, or in any country that still thinks of itself as a country, which is to say all of them. Remember this, in order to get the European treaty passed in France and in the Netherlands, they had to remove the parts about the flag and other symbols of unity. It is still 27 countries in a free trade zone, with different languages.
What Is the Fed Really Risking? This will be where I lose a few readers. The actual answer to the above question is, “Not much.” The Fed is not lending to European banks or even to the various national central banks. Its customer is the ECB, which will deposit euros with the Fed to get access to dollars. Making the safe assumption that the Fed knows how to hedge currency risk (fairly easy), the only risk is if the ECB and the euro somehow ceased to exist. And these are swap lines. This is not a new concept; it has been authorized since May, 2010. The real difference is that previously it has been used only for loans with 7-day maturity, and now that is extended to 3 months. This gives the ECB the ability to lend dollars for 3 months, which they must think will entice US money-market funds back into at least short-term commercial paper. (Just stay one step ahead of the ECB and the Fed, and your loan is “safe.” We will see how enticing this is.)
Now, this is not without costs. It is effectively another round of QE, although theoretically less permanent than the last rounds, as the swap lines have a finite and rather short-term end. And those banks need the money for existing business, so it should not flood the market with new dollars. If that were to happen, the Fed should withdraw the lines or withdraw dollars from the system on its own. Allowing their balance sheet to expand through a back-door mechanism like this is not appropriate monetary policy and would draw deserved criticism.
Why do it? It is not for solidarity among central bankers. The cold calculation is that a European banking crisis would leak into the US system. Further, it would throw Europe into a nasty recession, when growth is already projected (optimistically) to be less than 0.5%. That means the market that buys 20% of US exports would suffer and probably push us into recession, too (given our own low growth), making a far worse problem for monetary policy in the not-too-distant future.
Finally (and this is one I do not like), if the ECB was forced to go into the open market for dollars, the euro would plummet. As in fall off the cliff. Crash and burn. Which would make US products even less competitive worldwide against the euro. While I think we need a stronger dollar, that is not the thinking that prevails at higher levels. You and I don’t get consulted, so it pays us to contemplate the thought process of US monetary leadership and adjust accordingly.
Finally, I think that the end result of lending to the ECB will be to postpone the problem. The problem is not liquidity, it is insolvency and the use of too much leverage by banks and governments. This action only buys time. And maybe time is what they need to figure out how to go about orderly defaults, which banks and institutions to save and which to let go, which investors will lose, whether some countries must leave the euro, etc. Frankly, the world needs Europe to get its act together.
What Will the Fed Do Next Week? Bernanke has taken the highly unusual step of adding an extra day to next week’s FOMC meeting. While that raised my eyebrows, I thought his monetary policy movements would continue to be constrained. Given yesterday’s announcement of coordinated policy with the ECB, I am not so sure now. These things do not happen overnight or in a vacuum. The phone lines must have been open to Europe. The Jackson Hole meeting seemed innocuous enough, but I bet there were some very deep private conversations. This is something they have seen coming for some time. It is not like the whole euro problem is a surprise. Now, Bernanke has to bring his fellow FOMC members along for the next round.
Operation Twist seems to be priced into the market. The original Operation Twist was a program executed jointly by the Federal Reserve and the (freshly elected) Kennedy Administration in the early 1960s, to keep short-term rates unchanged and lower long-term rates (effectively “twisting” the yield curve). The US was in a recession at the time, but Europe was not and thus had higher interest rates. The equivalent of hedge funds back then (under the Bretton Woods system) would convert US dollars to gold and invest the proceeds in higher-yielding assets overseas. Billions of dollars worth of gold was flowing into Europe each year. (Incidentally, President Kennedy announced Operation Twist on February 2, 1961, which basically corresponded to the business-cycle trough.)
The notion behind Operation Twist was that the government would encourage housing and business investment by lowering long-term rates, and at least not encourage gold outflows, by maintaining short-term rates. Mechanically, the Federal Reserve kept the Federal Funds rate steady while purchasing longer-term Treasuries. The Treasury reduced its issuance of longer-term debt and issued mostly short-term debt. (self-evident.org)
Before I comment, let’s look at what Bill Gross had to say in the Financial Times:
“The front end of the curve has for all intents and purposes become inert and worst of all flat as opposed to steeply positive. Two-year yields are the same as overnight fund rates allowing for no incremental gain – a return that leveraged banks and lending institutions have based their income and expense budgets on. A bank can no longer borrow short and lend two years longer at a profit…
“By flooring maturities out to two years then, and perhaps longer as a result of maturity extension policies envisioned in a forthcoming Operation Twist later this month, the Fed may in effect lower the cost of capital, but destroy leverage and credit creation in the process. The further out the Fed moves the zero bound towards a system-wide average maturity of seven to eight years the more credit destruction occurs, to a US financial system that includes thousands of billions of dollars of repo and short-term financed-based lending that has provided the basis for financial institution prosperity.”
Bernanke made it clear in his infamous November 2002 “helicopter” speech that moving out the yield curve was in the Fed’s bag of tricks. By that, I mean they could do what Gross fears. They put a ceiling on the price of (say) the 10-year bond at 1.5%, in hopes of bringing banking and mortgage rates down, thereby theoretically spurring the economy and boosting the housing market. And in a normal business-cycle recession such a policy might work. But in a normal business cycle, it has never been necessary.
Twist and Shout? The main point of Bernanke’s speech was that the Fed had many policies it could use, even if interest rates were at zero, if it needed to fight inflation. It was a nice academic speech given to professional economists. But it offers some insight into his thinking.
First, that was then and this is now, as my kids like to remind me. Then, deflation was an issue on the minds of many. Now, this week’s CPI data suggest that, at least for the near future, deflation is not the issue. The Consumer Price Index rose 3.8% for the month, compared to a year earlier. That’s up from 3.6% in July and is the highest reading since September 2008. On a month-to-month basis, prices rose 0.4% in August, twice the rate of increase forecast by economists surveyed by Briefing.com. (CNN.com)
Real yields (after inflation) are already sharply negative. A 10-year bond is only 2.05%. Five-year TIPS are a negative 0.83%! Three-month rates are 0%! How much lower can it get? Yes, they can go (briefly) negative, but that is not a sign of a healthy economy. See the chart below from Bloomberg.
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Post by Clinton SPX on Sept 18, 2011 16:46:47 GMT -5
DSK Says Greece Is Done Submitted by Tyler Durden on 09/18/2011 15:22 -0400
Greece International Monetary Fund Italy United Kingdom
Funny how all it takes for people to tell the truth is to no longer be part of the status quo. Yesterday, former UK PM and gold trader extraordinaire Gordon Brown said the 2011 financial crisis is worse than that of 2008, and now we have the man who until 5 months ago was head (it just never gets old) of the IMF, saying that Greece is finished.
From Bloomberg:
STRAUSS-KAHN SAYS GREECE CAN'T PAY BACK ITS DEBTS STRAUSS-KAHN SAYS EVERYONE MUST ACCEPT LOSSES ON GREECE And in other news...
STRAUSS-KAHN SAYS HE WON'T RUN FOR PRESIDENT OF FRANCE Which probably means he will run for Prime Minister of Italy. After all, most politicians only talk about putting their youth to work. Only Italian PM's actually do it.
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Post by puurfectten on Sept 18, 2011 19:59:22 GMT -5
eur/usd should push to 128.. ..lions and tigers and bears....
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Post by Clinton SPX on Sept 18, 2011 21:31:33 GMT -5
(Reuters) - Greece on Sunday pledged to take the tough decisions needed to avoid default but announced no new austerity measures to secure international bailout funds next month.
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Post by novice08 on Sept 18, 2011 22:02:27 GMT -5
I just cannot believe they won't ultimately default...JMO and GLTA. That's why I have euo and uup. Here comes gold of course.
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