Meanwhile, back in Berlin/Brussels . . .

Well, I provided you all with 'a fast boat to China' but now it is time to return to Europe.  'SoD' provided me with a startling theory aired by Ambrose Evans-Pritchard in The Daily Telegraph in which he offers, in all sincerity, the mad possibility that given the fact that the European leadership has frozen in the headlights of the oncoming truck laden with TNT, the American Federal Reserve should step in and take over!  With 12 months to go before a presidential election?  I don't think so!  The idea smacks of some late-night, well-oiled, economic theorising to me!  But who knows in this lunatic, Alice in Wonderland world today.

However, for a thorough review of just where matters stand at present and the pros and cons of the rapidly diminishing number of possible actions, you can do no better than read this report in Der Spiegel.  The panic has begun.  It reminds me of Napoleonic warfare where commanders absolutely depended on the ruthless application of discipline in the ranks by NCOs and young officers to ensure that everyone stood firm under fire because they knew that within minutes, seconds, even, of one unit breaking and running, an entire army would melt away before their eyes.  Thus it is with the nations of the euro-zone today.  Not only are the 'usual suspects' under pressure but it has spread even to the strongest (allegedly) in the zone.  All the world's financial institutions, not just banks, but insurance companies, investment groups and even national funds are stepping back:

It is now clear, however, that a broad retreat from the crisis-stricken countries is underway across almost all investor groups. "It's no longer just the banks. Now insurance companies, pension funds and even sovereign wealth funds are selling off euro-zone bonds," notes Joachim Fels, the Morgan Stanley economist. The fear of losses and of a breakup of the euro zone is driving investors away -- as are the politicians who have fueled this fear through poor decisions.

Mind you, they might say they are selling off euro holdings but who's buying them?  I suspect that they are simply down-grading what they own and cannot give away with gold bars whilst simultaneously refusing to touch any more irrespective of whether they are Italian bonds or even German bonds.  Financially, euro-Europe stands huddled on its own like a bunch of lepers being stoned by onlookers!  In a post 'down there' somewhere I ventured that the crash would occur by Christmas and indeed, Spiegel reminds us that before the year-end the banks must close their books and shareholders will be asking severe questions of management if too many euro-zone debts are included.  With all that and much more in mind:

Hans-Joachim Voth, an economic historian who teaches in Barcelona, feels that the euro's days are numbered. He considers it advisable for economically strong countries like Germany to withdraw from the euro, because, so he argues, "not every stupid economic idea has to be defended to the bitter end." In theory, says Voth, the upcoming Christmas holidays could be a good time to take this step, because, as he argues, it's important to take the markets by surprise.

Sounds incredible but remember:

The question of how much longer the highly indebted peripheral countries can last is becoming more and more pressing. Close to €9 billion in Italian government bonds will mature this week, while more than €30 billion will come due by the end of the year.

When governments can no longer place their long-term debt with investors, they plug their holes with short-term loans. But investors are also demanding higher and higher yields for short-term bonds. On Friday, Italy had to offer rates of at least 6.5 percent for six-month bonds. By the first quarter of 2012 at the latest, when more than €112 billion in Italian bonds will mature, this short-term strategy will no longer work.

And there is one more crushing financial blow that the euro-zone will have to suffer, in the morning I will be taking my left-over-from-holiday euros, approximately e23.50, to the bank to swap them back into sterling - you can expect turmoil in the markets tomorrow!

 

Comments

[Whyaxye]

"in the morning I will be taking my left-over-from-holiday euros, approximately e23.50, to the bank to swap them back into sterling"

Had you not been exchanging Sterling for vatloads of their local refreshment throughout the summer, the whole system would have collapsed by now. Have you been giving the poor PIIGS false hopes?

[David Duff]

Guilty, m'Lud, I put it down to the strain of constant blogging.

(Someone explain to the old fool what 'blogging' is!)

[Kevin B]

I was going to invest some sterling in Italian wine the other day but then I noticed a two-for-a-tenner on Australian Merlot and decided my Antipodean relatives were more deserving, (despite their voting for Julia).

[Lawrence Duff]

AEP’s concept is very interesting: -

1. Fed buys Club Med bonds

2. US dollar devalues, thereby improving US competitiveness and growth. Downside is inflation, but the twist is that the inflation would be in the Eurozone! This is because all the dollars would stay in the liquidity starved Euro area. The US pulled this number on the Chinese recently: printing dollars and buying Chinese assets. It set off a bout of inflation in China that brought them to the negotiating table on the subject on letting the Chinese currency appreciate.

3. Euro goes through the roof. Jerries outraged (like the Chinese were) because they can’t export their Beamers anymore, and economic activity virtually ceases in the Club Med countries. And two juicy ironies into the bargain: -

a. Even though the Eurozone will disintegrate economically, it will remain liquid and solvent - sort of a fate worse than collapse: eternal stagnancy - but targeted just inside the Eurozone!

b. The Jerries wouldn’t be able to retaliate by buying US bonds or other junk bonds because of their own ECB rules, applied with Teutonic efficiency, to stop Club Med bond bailouts – oh the irony!

4. Fed keeps buying Club Med bonds until the Jerries throw the towel in and disband the Euro.

5. Orderly disbandment of the Euro.

Isn’t that exactly what we want?

And if you think about it, it’s only doing what a country does when it has a central bank and a currency (i.e. unlike the Eurozone) and is in this situation, because it’s the only thing to do, namely: print, devalue, inflate the debt away and rob savers. This is exactly what BoE and HMG are doing now: BoE is buying UK bonds. If we don’t do that, HMG and the banking system goes bust and we rob savers anyway with no upside.

The only difference in AEP's concept is that it’s a cross-border monetization of the debt, and it’d be the Jerries who suffer the stagflation and the US that gets the competitiveness and growth.

Can’t that be sold politically?

[David Duff]

All very 'slick Willy', Lawrence, but I don't think the headline "Fed Buys Euro Bonds" would read well on Main Street with an election due in 12 months. We must always remember that, on the whole, the Yanks do not like Europeans in general and, as it happens, Brits in particular. Anyway, it's all too late because I think (could be wrong, often am, as you know well!) it is now a matter of weeks/months before the 'le crunch'.

[David Duff]

Kevin, make mine a large glass, please!

[david morris]

Damn you & your market moving euro currency sale.

On a (slightly) different tack, & for those of us who subscribe to the view that history has shown that certain nations repeat their actions which bring about their downfall - isn't there a parallel between the last few months of
the Deutsches Reich & what is currently happening under the wise gaze of Frau
Merkel ? I refer of course to the grim resolution currently displayed by the German Authorities/Frankfort Gruppe to see the "Current Difficulties" through
to the bitter end...

Kind regards

[David Duff]

Or, 'to the last man', a phrase beloved of politicians hoist in their own petard.

[Lawrence Duff]

When 'le crunch' comes the choice will be (a) an international banking system with Fed purchase of Club Med bonds, or, (b) no international banking system.

When the cash machines close down across America, I feel the USA will open it's innings in the 21st century and deliver the first of what it did 3 times in the 20th: a rescue of its old Mother and Fatherland.

Looking after the decrepit and dribbly parents is one of those burdenable burdens. I think they like it really. Makes them feel all superior and worthy. And you have to say, they're bloody good at it.

SoD

[David Duff]

"the decrepit and dribbly parents" - Oi, watch it!

Virtually impossible to guess exactly how it will happen. My best guess is that the weaklings will be cast off and told to revert to their old currencies and 'do an Argentina'. Quite whether the central 'stronger'(?) bloc will then hold I just don't know. Big problem is the number of banks and businesses, in Europe and elsewhere, which will be clobbered in the fall-out because they hold too many euro-denominated bits of worthless paper.

The other factor whose strength should never be under-estimated is the fervor with which this European idea has seized the minds of the politicians. They will hurl defiance in the face of adversity to keep their dreamboat, SS Euro-Titanic, sailing along.

[dearieme]

Bismerckel

[Andra]

Well done Kevin. You'll be much happier with the Aussie brew.

I did not vote for Ms G!

[JK]

Eh, David? That little reply you made to Lawrence back up there at 1933? I think it was, "All very 'slick Willy', Lawrence, but I don't think the headline "Fed Buys Euro Bonds" would read well on Main Street with an election due in 12 months."

Well. Guess what?

http://bottomline.msnbc.msn.com/_news/2011/11/30/9113897-fed-global-central-banks-move-to-boost-financial-system

[Lawrence Duff]

You beat me to it JK! : -

Better than a formation of Superfortresses over Berlin.

Keep stoking up Eurozone inflation like that and we'll have Jerry on the run before Xmas.

SoD

[JK]

Alas Lawrence, you beat me to "decrepit and dribbly" ☺

[Lawrence Duff]

Instead of Superfortresses over Berlin dropping bombs, we have Milton Friedman's helicopters dropping dollars! (Does this wonderful metaphor know no limits!)

At last, the US and a coalition of the willing realizes it has a war winning weapon with which it can: -

1. Improve US and the willing's competitiveness and growth
2. Destroy Eurozone competitiveness and growth
3. Fuel Eurozone inflation
4. Force the Jerries to disband the ludicrous Euro due to 2 and 3
5. An orderly disbandment of the Euro (orderly because although fiscally uncompetitive and contracting, the Eurozone will be liquid and solvent).

Go America!

I can't wait to see the expression on the faces of Merkel, Schauble, Junckers et al when the realization dawns that the game is up, and they won't be taking the world down with them.

Time for one last ditch "Ardennes offensive"? No doubt, but the end game will still be the same: suicide in the bunker.

SoD

[David Duff]

The best/worst is yet to come:

"Michael Hewson, market analyst at CMC Market, said: "It gives an indication that monetary authorities are prepared to do what is required to stop a freeze up in the funding markets. But, basically all they are doing here is QE (quantitative easing) on steroids. It does not deal with the underlying issues."

[Lawrence Duff]

Yes, it's cross-border QE.

The greenbacks dropped from Friedman's helicopters won't be going back over the pond any time soon, so desperate are the Euro banks for liquidity and balance sheet solvency. But the PIIGS will spend all theirs, thereby creating rampant inflation in the Eurozone only.

Eventually the green backs will make their way back to the land of the free, and then there will be inflation there too. But fighting Jerry economically or militarily there's always a price to pay; the dead and wounded made the same journey.

SoD

[JK]

Well DD, don't know if you Islanders have an equivalent expression, but here we'd call it a Hail Mary Pass.

But, should it not win a re-election, we'd call it a punt resulting in a runback for a TD.

(However - given the current field - ... well, I know you understand pyrrhic.)

[David Duff]

I just wish those helicopters would drop a few greenbacks in my back yard!