End of the Euro

[Ludwig]

Its interesting to note that the "treaty" Cameron Vetoed is now being shredded by even the french....

Who'd have thought it, the French hedging their bets?

[RenewableCandy]

I think their finance minister heard me (from beeb news)

[UndercoverElephant]

http://www.bbc.co.uk/news/business-16226543

"Following the EU Summit on 9-10 December, Fitch has concluded that a 'comprehensive solution' to the eurozone crisis is technically and politically beyond reach," the agency said in a statement.

One sentence can have a lot of power. "Technically and politically beyond reach" is about as clear as it gets. It means that an "orderly" ending to the eurozone crisis is no longer a credible possibility - that there will be a series of major defaults both of countries and financial institutions.

I think that up until very recently, it was still (just) possible that the crisis would be resolved by the ECB printing lots of money, but it is now clear that the political difficulties are too big.

Peston has said the same thing in the last couple of days:

(15/12)

http://www.bbc.co.uk/news/business-16195018

Here is the simple equation which makes it quite hard to be optimistic about what lies ahead for the eurozone: the stability of the eurozone probably requires Germany to underwrite more-or-less all eurozone sovereign debts, to end the contagion from weak sovereigns to weak banks; but that won't happen unless and until there is an all-powerful finance minister (in effect) for the whole of the eurozone, to reassure Germany and the German people they wouldn't be throwing good money after bad.

Or to put it another way, unless a country like France is prepared to make a much greater sacrifice (for the good of the currency union) of its own government's budget-making powers than it currently seems prepared to do, it is quite hard to paint a rosy picture for the eurozone.

That's it, in a nutshell. The Germans won't/can't accept a "fiscal union" solution unless somebody they trust is in charge of the budgets of other Eurozone countries, France included. But the French won't/can't accept the loss of sovereignty that involves. And if the French and Germans can't agree to a solution, then the game is over.

(16/12)

http://www.bbc.co.uk/news/business-16215365

Or to put it another way, the unprecedented massive swapping by banks of their assets for central-bank loans is not a permanent solution to the strains in the eurozone banking market. It will work only till every last asset has been pledged to the central banks - and then, as I said yesterday, goodness only knows what follows.

So we are beginning to get an inkling of precisely how this extended period of denial and can-kicking is going to develop into a full-blown monetary crisis. At some point in the coming months either a eurozone country or a large financial institution is going to arrive at the edge of the precipice, just as they did back in the autumn of 2008, except this time instead of being too big to fail, they are going to be too big to save.

The big unknown, at least as I see it, is what is going to happen in the United States. People have been busily concentrating on the eurozone crisis, but the US has not sorted out its own effective bankruptcy either. More importantly, it is the US and the dollar which stands behind the entire capitalist system and a meltdown in the eurozone is likely to lead to a meltdown in the US banking system. Eventually the US is going to have to decide whether to start printing dollars in order to bail out european banks and countries (knowing that the ECB is NOT going to), or to allow the bankruptcies to occur and accept the consequences. At that point we will find out which of two routes we are going to take. EITHER there is going to be serious inflation of all western fiat currencies (all because we've already seen how countries like Switzerland and Japan have been forced to devalue their own currencies not because of debt problems but because they do not want their currency to be a safe haven, because this will cripple their export capacity.) OR there is going to be a chain of defaults and bankruptcies of the sort that will make the Great Depression look like a walk in the park. I am now convinced that one of these two outcomes will occur within twelve months from now, that it will be triggered by something going critical in the eurozone, and that the choice between the two possible outcomes will have to be made by President Obama just as he faces an election.

[biffvernon]

"Technically and politically beyond reach" is about as clear as it gets.

I have a jar of biscuits that is beyond reach. I also have a stool upon which I can stand.

(But I expect you are right.)

[Lord Beria3]

Great summary UE.

I suspect that the ECB and other central banks will do everything in their power to avoid a major bank going down and yes, they will change the rules to ensure that, if necessary givin money (without any assets from the banks) if needs be.

What the ECB will refuse to do is buy up unlimited amounts of government bonds and this means that we are facing within months (probably) a series of defaults by sovereign states which will lead to the nationalisation of much of the European banking system and only AFTER these defaults by Greece, Portugal etc will the ECB start a panic monetisation.

Will the euro then break-up? Difficult to see how it could survive after a number of major countries default, either way expect a degree of disorder throughout southern Europe.

[Lord Beria3]

UE you may be interested in the following:

http://www.financialsense.com/contribut ... -the-world

He argues that first Europe, than Japan and than the US (3 to five years) will see a bond implosion.

That implies that around 2015 we will see the final collapse of the bond markets - US - which coincides with the start of a much greater tightening of energy supplies globally.

That kinda makes sense, although I wouldn't rule out that contagion smashing into the US sooner than three years down the line.

[Lord Beria3]

http://www.businessweek.com/magazine/ge ... age_2.html

Fascinating article on the massive losses Germany would face (half a trillion!) if the euro collapsed.

Germany faces a dilemma familiar to anyone who has ever made a bad loan—whether to keep throwing good money after bad to keep the debtor afloat or pull the plug and suffer the consequences. The half-trillion-euro claim the Bundesbank has on the ECB is an important but poorly understood factor in the decisions over the future of the euro. So it’s in the interests of everyone that central bankers provide more transparency when it comes to Target2. Says Citi’s Rahbari: “From the moment that you seriously start to consider breakup as a plausible scenario, these issues should probably be given more prominent space in the public debate.”

[UndercoverElephant]

UE you may be interested in the following:

http://www.financialsense.com/contribut ... -the-world

He argues that first Europe, than Japan and than the US (3 to five years) will see a bond implosion.

That implies that around 2015 we will see the final collapse of the bond markets - US - which coincides with the start of a much greater tightening of energy supplies globally.

That kinda makes sense, although I wouldn't rule out that contagion smashing into the US sooner than three years down the line.

Yes, good interview.

I don't think they can hang on until 2015.

[Lord Beria3]

UE you may be interested in the following:

http://www.financialsense.com/contribut ... -the-world

He argues that first Europe, than Japan and than the US (3 to five years) will see a bond implosion.

That implies that around 2015 we will see the final collapse of the bond markets - US - which coincides with the start of a much greater tightening of energy supplies globally.

That kinda makes sense, although I wouldn't rule out that contagion smashing into the US sooner than three years down the line.

Yes, good interview.

I don't think they can hang on until 2015.

Quite possibly - have a look at the Leap 2020 link I just put up.

http://www.financialsense.com/financial ... of-thieves

This is anather great interview, they argue that the first half of 2012 will see the 'bad news' first, with potentially a number of Lehman style defaults by countries and banks before the ECB finally go berserk on the printing presses and stablise the markets (although it will trigger rising inflation and a collapsing euro on the currency markets).

All that funny money will in the short term lead to a kind of modest recovery towards the US presidential elections of 2012 fuelled by QE3 in America around Spring 2012.

[UndercoverElephant]

All that funny money will in the short term lead to a kind of modest recovery towards the US presidential elections of 2012 fuelled by QE3 in America around Spring 2012.

Indeed. I think there is going to be a mammoth effort to delay the really serious crisis until after the US election (early November.) If I had to guess when the shit is really going to hit the fan, I'd say it will happen between then and Christmas next year, exactly in line with the prophecy. The eurozone may implode before that point though, and TPTB may not be able to hold out until the election.

[Lord Beria3]

Agree, I do think that 2013 could and will be worse than 2012, hard to predict into the future but the financial sense people have a better track record than most.

http://www.marketoracle.co.uk/Article32155.html

Good article on the euro.

[SleeperService]

@ UE and LB3 WOW! what an excellent summing up above!

I've been hoping for an 'orderly' collapse but I think that's rather unlikely now

I think that the retail sector in the UK will be 'interesting' after the year end and may trigger things in this country as retail chains start failing faster.

May we live in interesting times

[extractorfan]

Having read those links there's nothing in there that leads me to believe anything other than slow descent, not orderly, but slow. In fact as long as we can print our way out of the debt bubble, there should still be jobs and incomes. Sure lower standards of living year on year, but no one year exhibiting signs of any sudden catastrophic shock.

But it does remain interesting

[Lord Beria3]

Having read those links there's nothing in there that leads me to believe anything other than slow descent, not orderly, but slow. In fact as long as we can print our way out of the debt bubble, there should still be jobs and incomes. Sure lower standards of living year on year, but no one year exhibiting signs of any sudden catastrophic shock.

But it does remain interesting

Peak Oil is a factor not being considered in these 'printing money' solutions by the central banks/politicians to kick the can down the road before growth magically returns.

Peak Oil - rising scarcity of oil - will combine with the inflationary pressures of a rising money supply to trigger massive and uncontrollable inflation.

If it was only a debt problem than I could forsee a slow and managable decline as the debts in real terms were wiped out by high inflation - all just about orchestrated by the central banks. This could go on for a decade.

Peak Oil will pop this inflationary debt bubble, leading to the collapse of the current global financial system and the revertion of a new era of scarcity industrialism.

So, the coming transiton will be disorderly and I would not rule out in certain countries a hard crash style collapse during that transition to scarcity industrialism.

[Lord Beria3]

This does not mean, I stress, the collapse of civilsation Last Night style but a rising wave of chaos and disorder which will claim ever more regions/states in the coming decades.

Indeed, I think that this process of slow collapse is accellerating... read this article on the money supply situation.

Throw in rising scarcity and a terrifying perma-contraction in conventional oil supplies post-2015 than the mid-decade (e.g. around 2014/2015) could be a watershed when our current globalised neoliberal fiat-currency order finally reaches its endgame and some kind of new protectionist, militaristic and statist new order emerges (scarcity industrialism).

His discovery is interesting. Singularity for this curve, or the point where the gold price goes to theoretical infinity, is in February 2014, only 26 months away. Unless this long-term trend is somehow broken, gold is also telling us the dollar is heading for hyperinflation.

http://www.financeandeconomics.org/Arti ... S-hypo.htm

http://www.financialsense.com/financial ... new-supply

Tightening oil supplies from 2012 to 2015

http://www.financialsense.com/financial ... -2-3-years

Dr. Robert Hirsch: “We Are Staring Directly Into An Energy Storm in The Next 2-3 Years”