Monday, 10 May 2010 04:53

The EU Has Set Up An Oppurtunistic Entry Point for Shorts Instead of Expressly Offering a Solution to the Pan-European Sovereign Debt Crisis!

As many of us were expecting, the EU has come together for their 54th meeting to discuss their 9th solution to the problems that were contained in just Greece, which were over two months ago, just as Greece said they didn't want and were not looking for any aid - which was good since the Germans said they would never give any aid as France said any inclusion of the IMF would be the end of the Euro - as the IMF offers aid right before this big meeting that arranges a nearly trillion dollar package of more promises that pushed the STOXX index up over 7%. Wheww!!! Even with a 4 line run-on I could barely get all of the non-functional BS in. Let me excerpt this one line from a recent Bloomberg story that sums it all up:

“It might temporarily calm nerves but questions will come back later on how they will pay for this package when all of them need fiscal consolidation,” Anantha-Nageswaran also said.

It appears that "politciians" will never be able to solve this economic problem of the state, for they are too constrained by politics (I'm giving them the benefit of the doubt in assuming they truly recognize the problem). For those that don't get it, I will try to express it simply.... You cannot cure issues of over-indebtedness and insolvency by lopping humongous amounts of debt onto the problem. All that does is exacerbated the issue, with the immediately calming, but eventually scalding realization that all you have done was kicked the can down the road (and adding lead to said can which makes it both heavier and more toxic). The ailing countries at hand need significant structural change and equity in some form or fashion. Adding more debt simply makes them more indebted.

ECB policy makers said they will counter “severe tensions” in “certain” markets by purchasing government and private debt, and the bank restarted a dollar-swap line with the Federal Reserve.

QE, right on schedule. The ECB will load up on this stuff which will eventually devalue, and then what???? The will look just like the Federal Reserve, minus the reserve currency... Don' t get me wrong, I'm all for significant action to be taken, but it must be in a logical definable form. Just spending money replicates the actions that got us here in the first place. Back to the original questions, "How will it be pad for when nearly all of the contributing states are facing some form or fashion of austerity of their own?" and "Where is equity to counterbalance all of this debt?".

“This truly is overwhelming force, and should be more than sufficient to stabilize markets in the near term, prevent panic and contain the risk of contagion,” Marco Annunziata, chief economist at UniCredit Group in London, said in an e-mailed note. “This is Shock and Awe, Part II and in 3-D.”

Yeah, okay! More like spend and borrow, the indebted edition... The US "Shock and Awe" was an EQUITY package, not a loan package!

Under the loan package, euro-area governments pledged 440 billion euros in loans or guarantees, with 60 billion euros more in loans from the EU’s budget and as much as 250 billion euros from the International Monetary Fund.

... “While the ECB’s intervention might attract bad press regarding its mandate and independence, we believe that this was necessary to short circuit the negative feedback loop which was getting more and more threatening for the global economy. ”

What independence is being referred to? The ECB is now  political office.

Inability to craft a convincing package in time would have left deficit-plagued countries at the mercy of the “wolfpack behavior” of speculators, Finance Minister Anders Borg of Sweden, a non-euro member, said as the meeting began.

The new war chest would be used for countries like Portugal or Spain in case their finances buckle. Deficits are set to reach 8.5 percent of gross domestic product in Portugal and 9.8 percent in Spain this year, above the euro region’s 3 percent limit. Both countries pledged “significant” additional budget cuts in 2010 and 2011, which will be outlined in May, an EU statement said.

The extra yield that investors demand to hold Greek, Portuguese and Spanish debt instead of benchmark German bonds rose to euro-era highs last week. The premium on 10-year government bonds jumped as high as 973 basis points for Greece, 354 basis points for Portugal and 173 basis points for Spain.

And therein lies the problem, lies!!! These countries have stretched the truth concerning both their historic and future financial prospects to the point where they are about to snap. That is the real reason why the speculators have went after them. They LIED and he markets know it! Reference Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! Practically all of the member states offering this loan package actually need money and are well beyon the debt limits stated in the Maastricht (?) treaty! I am curious to see how this is going to work.

Britain, the EU’s third-largest economy, won’t contribute to a euro rescue fund, though it backs efforts to restore stability, Chancellor of the Exchequer Alistair Darling said.

“When it comes to supporting the euro, that is for the eurogroup countries,” Darling told Sky News.

The wisest comment in the whole article. Here's a quote from another article, just to demonstrate the silliness of the logic here:

"Stocks surged around the world, the euro strengthened and commodities gained as European policy makers unveiled a $960 billion loan plan to end the region’s sovereign-debt crisis."

See the complete Sovereign Debt Crisis free and available to the public.

Last modified on Monday, 10 May 2010 08:25

8 comments

  • Comment Link Lakshminarayanan Thursday, 13 May 2010 01:22 posted by Lakshminarayanan

    "There comes a time when the amount of money needed to effect price movement becomes too large, even for central bankers"

    Correct! But the problem is this time is a long time coming. This is the window that central bankers use to blow bubbles.

    For example in India the asset prices had dropped (like elsewhere) during the post-Lehman period but the mechanitions of Ben Bernanke has been so effective that the asset prices have climbed to pre-Lehman crisis. This makes people who hold on look so foolish that they clamber on to the bandwagon of chasing asset further driving up the prices (can't blame them too when you see asset prices climbing every day despite it being out of sync with reality).

    Also this bubble makes Ben come out as saviours of the system rather than the cause of the rot in the system.

    Thus all the aces (the ability to blow bubbles) seem to be held by the regulators and governments and there does not seem to be any system that can give this a blow from which it is difficult to rise.

    The power of intervention is what is holding the system together and there does not seem much we can do about it.

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  • Comment Link Reggie Middleton Tuesday, 11 May 2010 07:23 posted by Reggie Middleton

    There comes a time when the amount of money needed to effect price movement becomes too large, even for central bankers. I fear that time may have arrived in Europe.

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  • Comment Link Lakshminarayanan Tuesday, 11 May 2010 04:58 posted by Lakshminarayanan

    Reggie,

    As long as these central bankers with the biggesr culprit being the Fed, can throw money at the problem the problem will not be solved but tried to be papered over.

    What do you think is the chance of Fed being unable to throw money at the problem.

    That is the time the whole thing collapses .. Will it and if so when??

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  • Comment Link map3 Monday, 10 May 2010 09:01 posted by map3

    I cannot believe I got margin called on my micro FX account. I guess it was $100 toward a life lesson in short term greed.

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  • Comment Link James Monday, 10 May 2010 08:39 posted by James

    Absolutely spot-on, Reggie.

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  • Comment Link Reggie Middleton Monday, 10 May 2010 08:29 posted by Reggie Middleton

    We've seen this play out already. Massive liquidity dumped on a solvency problem causes markets to ignite, shooting upwards with absolutely no regard for the fundamentals until reality hits, then things fall back faster and harder than they did the first time around.

    I now think the risk of inflation has increased somewhat, although deflation is still the risk of the day. All of this action and think about it, has the real value of Euro increased any?

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  • Comment Link Matto Monday, 10 May 2010 06:44 posted by Matto

    Ive been trying to follow this all day here in australia but have exams in the morning and cant afford that much time.

    Considered closing some put positions at the open but with the euro markets already up there wont be much of a chance.

    Positions are all out to September or further so i'll sit tight.

    Great opportunity for Euro members to get their money out!

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  • Comment Link Matto Monday, 10 May 2010 06:44 posted by Matto

    Ive been trying to follow this all day here in australia but have exams in the morning and cant afford that much time.

    Considered closing some put positions at the open but with the euro markets already up there wont be much of a chance.

    Positions are all out to September or further so i'll sit tight.

    Great opportunity for Euro members to get the hell out!

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